Australia is a country located on the Southern Hemisphere that mainly constitutes the mainland of the Australian subcontinent, as well as the island of Tasmania. Additionally, there are a few other islands that are clubbed together, primarily on the regions of the Indian and the Pacific Oceans. It is divided into six states, and 2 broader territories. With Canberra being the capital of Australia, the official language is English, and the currency is the Australian Dollar (AUD).
There were a couple of British Colonies that were created in 18th and 19th centuries. However, they were eventually federated to be included as a part of the Commonwealth of Australia back in 1901. Over the recent decades, Australia has managed to reinforce remarkable growth and development, primarily owing to increased international competitiveness, as well as transition towards an advanced market economy. It was also declared as one of the fastest growing economies during the 1990s, as a result of constructive policy related implications in the 1980s. The fact that Australia is abundant with diverse natural resources attract high levels of foreign investment, as well as international immigrants. They also have extensive reserves of coal, iron ore, copper, gold, natural gas, uranium, as well as a handful of other renewable energy resources.
As far as taxation is concerned, it can be seen that Australia has a fairly progressive (and equitable) tax regime. There are policies in place to support businesses, as well as individuals who are either retired, or are unemployed.
Corporate Taxes in Australia
Corporates that are declared as residents of Australia are subject to Australian Income Tax on their worldwide income. However, as far as non-resident companies are concerned, it can be seen that they are mainly subject to Australian Income Tax on Australian Sourced Income only.
All the companies that are based in Australia are subject to a federal tax rate of 30% on their taxable income. However, for small companies, there is a tax incentive in place, which makes them liable to pay a reduced tax rate of 26% for the given income year. The reduced tax rate applies to companies that have an aggregated turnover of threshold of less than AUD 50 Million. The threshold of AUD 50 Million must also include the income that is generated from the related entities of the given business.
Additionally, there are a handful of other tax incentives that are in place pertaining to corporates in Australia. These incentives are mainly directed towards capital investment. For example, accelerated deductions are available for capital expenditures that are related to exploration, as well as extraction of petroleum and minerals. In the same manner, there are also tax incentives that are directed towards encouraging investments in the venture capital sector.
In the same manner, Australian Government also has tax incentives in place for corporates that invest in Research and Development. For income years prior to 30th June 2021, companies that have an annual turnover of less than AUD 20 Million are able to access a 43.5% refundable R&D tax offset. However for companies that have a turnover of greater than or equal to AUD 20 million, the R&D tax offset is equivalent to 38.5%.
Individual Taxes in Australia
A resident individual is subject to Australian Income Tax on a worldwide basis. This implies that individuals have to pay taxes on income that has been gained in both, Australia, as well as outside Australia. On the contrary, a non-resident individual is mainly liable to pay taxes on income that has been sourced within Australia.
As far as the Personal Income Tax Rates are concerned, it can be seen that Australian Government has implemented a seven-year Personal Income Tax Plan. This plan was directed towards providing a tax relief to the individual tax payers via lower Personal Income Tax Rates as well as Low and Middle Income tax offsets. The tax rates for residents that would be applicable for the year commencing on 1st July 2020, are summarized in the following points:
- For a taxable income between AUD 0 and AUD 18,200: A tax rate of 0% would apply.
- For a taxable income between AUD 18,200 and AUD 45,000: A tax rate of 19% would apply.
- For a taxable income between AUD 45,001 and AUD 120,000: A tax rate of 32.5% would apply.
- For a taxable income between AUD 120,001 and AUD 180,000: A tax rate 37% would apply.
- For a taxable income over AUD 180,001: A tax rate of 45% would apply.
On the other hand, as far as non-residents are concerned, the tax rates that are applicable for the year commencing on 1st July 2020 are as follows:
- For a taxable income between AUD 0 and AUD 125,000: A tax rate of 32.5% would apply.
- For a taxable income between AUD 90,000 and AUD 180,000: A tax rate of 37% would apply.
- For a taxable income over AUD 180,000: A tax rate of 45% would apply.
In the same manner, as far as working holiday makers are concerned, they are levied with a different tax. Special income tax rates would apply to a working holiday maker who is defined as an individual who holds a temporary working visa or a work and holiday visa for the time being he is Australia. In this regard, the first AUD 45,000 from a working holiday maker’s income is taxed at a rate of 15%. The remainder is taxed at ordinary rates.
In addition to personal Income Taxes in Australia, there are a couple of other taxes too that are levied in this regard, they include the following:
- Social Security Contributions: There are no social security taxes in Australia. However, there is a contribution of 2% in order to fund the National Health Scheme. This levy is only applicable on individuals that have an earning above a certain threshold.
- Consumption Taxes: There is a Goods and Service Tax (GST) applied on goods and services at a rate of 10%. It can be defined as a VAT (Value Added Tax) on each and every level of manufacturing and marketing chain.
- Net Wealth/ Worth Taxes: Australia does not have a net wealth tax in place.
- Inheritance and Gift Tax: Australia does not have an inheritance tax, estate tax or a gift tax in place. However, there are specific rules that are applicable to the transfer of assets to a beneficiary from a deceased estate (primarily for a capital gains tax purpose).
- Property Taxes: All the different states and territories in Australia have land taxes that are imposed on the unimproved value of land. However, this is also subject to certain exemptions for a principal residence.