Australia Market
Australian Taxation
Indirect Tax
A 10 per cent Goods and Services Tax (GST) on most goods and services consumed in Australia was introduced on 1 July 2000. Implementing a broad based, indirect tax system more reasonably shares the tax burden. The GST revenue is paid to State and Territory Governments, providing them with funding for services, such as health and education. Industry costs have reduced due to the replacement of the old wholesale sales tax and other embedded taxes with the GST.
Financial institutions duty and stamp duty was removed on most share transactions from 1 July 2001.
Personal Tax
The new thresholds resulting from the most recent review of Australia's personal tax scales are in place for income years beginning 2005-06:
- Excess imputation credits are refunded.
- The capital gains tax rate for individuals has been halved.
Business Tax
From 1 July 2001, the following reforms have applied:
- a reduction in the company tax rate to 30 per cent;
- a unified capital allowance regime; and
- an extension to the thin capitalisation regime, which serves to prevent multinational corporations from allocating a disproportionate amount of debt to their Australian operations.
From 1 July 2002 the following reforms have applied:
- the consolidations regime that allows company groups to lodge a single tax return and helps to overcome tax impediments to restructuring;
- the demerger provisions to further facilitate group restructuring; and
- the simplified imputation regime.
Leasing
The Government has announced a commitment to reforms of the existing tax treatment of leasing and similar arrangements between taxpayers on the one hand and tax-exempt and non resident end users on the other, for the financing and provision of infrastructure and other assets.
Taxation of Financial Arrangements (TOFA)
The Government has implimented two stages of its four stage reform of provisions regarding the taxation of financial arrangements and has announced a timetable to implement further reforms recommended in the Ralph Report on business taxation.
New provisions that determine whether an interest in an entity is ‘debt’ or ‘equity’ have been introduced, as have new provisions for the taxation of foreign currency denominated transactions.
New tax-timing arrangements including a mark-to-market election, an accruals/realisation framework, hedging rules generally, disposal rules, and synthetic arrangements will not commence before 1 July 2005.
International Tax Review
In May 2003, the Government announced its response to the Board of Taxation's review of International Taxation Arrangements. The reforms are designed to improve the competitiveness of Australian companies with offshore operations. They will also encourage foreign groups to establish regional headquarters in Australia and improve Australia's attractiveness as a continuing base for multinational companies. In particular, the reforms will enhance the competitiveness and reduce the compliance costs of Australian-based managed funds. Changes to Foreign Investment Fund and Interest Withholding Tax, as outlined below, have occurred as a result.
Foreign Investment Fund (FIF) Changes
Qualifying superannuation entities and fixed trusts where all the beneficiaries are complying superannuation entities are exempt from the FIF rules for income years beginning on or after 1 July 2003.
The FIF balanced portfolio exemption threshold has been increased from 5 per cent to 10 per cent for income years beginning on or after 1 July 2003. The management of funds has been removed from the FIF ‘blacklist’.
Interest Withholding Tax (IWT)
Australian widely held public unit trusts are exempt from IWT on interest paid on widely distributed debentures issued to non residents. This change applies to all qualifying debentures issued on or after 23 June 2004.
Foreign Income Concessions and Exemption Changes
The amount of capital gain or capital loss that will be subject to Australia’s capital gains tax rules has been reduced or eliminated, with effect from 1 April 2004, where Australian companies (or Australian controlled foreign companies) sell shares in a foreign company with an underlying active business.
The exemptions for foreign non-portfolio dividends and foreign branch profits have also been extended to all countries, for dividends paid after 30 June 2004.