Tax

Income Tax

Taxable Income and Deductions

Tax assessable on ordinary income less deductions, for tax residents

Tax Payable

Between 19%-47%

30% for companies

Offsets and Rebates

Offset by prior year losses

Medicare Levy

2%

Medicare Levy Surcharge

1% – 1.5% depending on income, unless you hold private hospital cover

PAYG – Withholding:  Employer withholds tax amounts from income payments and remits to ATO – so individual does not need to pay

Taxable Income and Deductions
Assessable Income

Assessable Income includes:

  1. Ordinary Income – from personal exertion, carrying on a business and property (interest, dividends, rent) excluding most capital gains
  2. Statutory Income – e.g. capital gains

Assessable Income excludes:

  1. Exempt Income – not assessed but can be used in calculating losses e.g. pension, education payments
  2. Non-assessable non-exempt Income (NANE) – not assessed and doesn’t affect losses e.g. super co-contributions, redundancy payments
  • Amounts are GST-exclusive
  • Except the following capital expenditure is deductible
  • Capital Allowances (Div 40) – for decline in value of depreciating asset (except land), through balancing adjustments to assessable income (increase or deduct), unless rollover relief applies (deferral)
  • Capital Works (Div 43) – improvements, extensions and alterations, to cover wear and tear
  • Losses – COT and SBT tests
Deductions

Can deduct loss or outgoings incurred in producing assessable income or in carrying on a business for the purpose of producing assessable income

  • Can’t deduct capital outgoings, private or domestic costs or exempt/NANE income
Residency

Residency – Australian taxpayers taxed on income derived within and outside of Australia.
Non-residents taxed on income from Australia

  1. Individual – resides in Australia or spends 183 days of the year
  2. Company – incorporated in Australia or has central management and control in Australia

Company Structures

Company

Company tax rate applies to assessable income

Consolidation for corporate groups – group treated as single entity to reduce compliance – calculate Allocable Cost Amount (ACA)

Dividend imputation

Partnership

Tax flow through – net income assessable to partner

Trusts

Beneficiary assessed on trust income

Different treatment for managed investment trusts

Debt/Equity Rules​

 

Frankable?

Deductible?

 

Debt

N

Y

Deductions

Equity

Y

N

Dividends

Thin capitalisation:  restriction of debt/equity ratio to 1.5 : 1 for multinational corporations
Safe harbour debt amount:  60% of Australian assets

Capital Gains

Calculating net capital gain or loss

Capital proceeds -Cost base = Capital Gain

  • Reduce for any capital losses in the year
  • Reduce for any net capital loss carried forward from previous years
  • Rollover provisions can apply to defer the gain/loss

CGT Asset

Property or legal or equitable right, including capital improvements, which are treated as separate assets for CGT purposes

Taxable Australian Property (TAP) – non-TAP disregarded for foreign tax residents

CGT Event and Timing

Events include disposal, destruction

Timing is specified for each event

Cost Base

Cost of acquisition, costs of owning property

Reduced cost based used in determining losses

Capital Proceeds

Money received

CGT Discount

12 month holding requirement – 50% discount for individuals and trusts, not available for companies

Fringe Benefits

Benefit provided by an employer to employee in respect of employment
Paid in quarterly BAS

GST

Taxes value added at each step in production

  • B2B: Purchaser claims input tax credits
  • B2C: Customers cannot claim input tax credits

Types of Supplies

 

Output GST

Input Tax Credits

Examples

Taxable Supplies

Y

Y

Most goods

GST-free Sales

N

Y

Exports, food, medical supplies

Input-taxed Supplies

N

N

Financial supplies, sales of residences

R&D Tax Incentive

R&D Tax Incentive – 40%-45% offset for eligible companies

Dividends

Imputation – to prevent double taxation through franking credits

Stamp Duty

Dutiable Transaction

Shares

Assets

Goodwill

Land

Dutiable Value

Greater of consideration and unencumbered value

Transfer Duty

Transfer of shares or assets

Landholder Duty

Acquiring land or an interest in a company that holds land

Transfer Pricing

Application

International transactions in MNCs – to prevent profit-shifting

Arms Length

Transactions should comply with the arms’ length principle to avoid being taxed

Anti-avoidance

Part IVA

General Anti-avoidance rule which prohibition on arrangements entered into for the sole or dominant purpose of obtaining a tax benefit

CFCs

Controlled Foreign Companies (CFC) – attribute overseas income to Australian shareholders to prevent profit-shifting

Multinational Anti-avoidance Law (MAAL)

Additional obligations on MNCs, e.g. produce general purpose financial statements

Diverted Profits Tax (DTA)

Prevents diversion of profits offshore by applying penalty tax rates

Base Erosion and Profit Shifting (BEPS)

Exploitation of gaps in global tax laws

Involves shifting expenses to high-tax jurisdictions and profit to low-tax jurisdictions

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