As one of the world’s most developed nations, Australia is a force to be reckoned with. It was arguably the only major market not to be affected by the economic crash of 2008, and it has enjoyed decades of growth thanks to strong leadership, booming middle-class citizenship and a laid-back attitude to foreign investment, allowing business owners and entrepreneurs from around the world to set up shop in the country, creating jobs and generating wealth.
But before you make the jump and take advantage of the commercial opportunities Australia has to offer, you must first get to grips with the country’s tax system. Indeed, it’s likely to be very different from the tax system in your home country. Taxes are collected the country’s tax office, known as the Australian Taxation Office (ATO), and are split into several categories.
As a business owner, it’s your responsibility to pay the correct taxes at the right time, either monthly, quarterly or annually, so that you can take advantage of tax concessions, reduce the chances of late fees or fines, and be certain that your business remains within the law. Hiring a dedicated accountant or local tax specialist may be your best be, in this case, reducing the pressure at your end. To give you a helping hand, we offer an introduction to the Australian company tax system for you to peruse below…
If you have opted for a business structure such as a partnership, company or trust, you’ll be required to pay company tax at a rate that is set by the country’s government. The 2017-18 tax rate for Australia is currently 30%, whilst a lower tax rate of 27.5% applies to base rate entities (companies that have a turnover of less than $25 million and a base rate entity passive income at 80% or less of their total assessable income). Speak with an accountant to be sure which tax bracket applies to you, or assume the higher rate to be on the safe side.
It’s important to note that businesses that do not have a physical presence in Australia will still be taxed on its Australian source income at the same rate as any resident company. If you are from the United Kingdom but you make an income from clients in Australia, for example, then you may be liable to pay Australian taxes on those profits if you’re registered.
Capital Gains Tax
Another common company tax is the Capital Gains Tax (CGT), which is applied to capital gains that are made through the disposal of your assets. If you sell a property in the country as part of your business, for example, then you’ll be required to pay CGTon any monies earned from the sale of such property. This tax is paid as part of income tax.
As a foreign entity, you may also be required to pay CGT on assets that you acquire and use when doing business in Australia. It’s important that you keep a record of all of your assets so that, when you sell those assets, you can prove the price you paid and the price you sold for. Small businesses, for example, are often eligible for concessions on CGT, and so having a clear record of all purchases and assets will help you to apply for these.
Goods and Services Tax (GST)
The Goods and Services Tax (GST) is Australia’s consumption tax, applied to most goods and services that are sold and consumed in the country. As a business owner, you will be required to register for GST with the Australian Taxation Office, and you will be able to apply for a tax credit or rebate if you pay for business supplies or goods that have GST added. Of course, keeping paperwork, invoices, and receipts is essential, and so hiring an accountant or bookkeeper will serve your business well.
Another tax you need to take into consideration when you launch a business in the country is the payroll tax, which helps to find education, health, public safety, and law and order in the country. This tax is self-assessed, and you’ll need to ensure you provide any necessary information to the tax office and pay your fair share. From July of 2018 through to June 2023, all payroll tax will be calculated on a tiered scale, from 5.5% to 6.5% of employees’ salaries.
If you have an employee aged 18 or over who is paid more than $450 per month, you will be responsible for their superannuation, designed to cover the costs of retirement. Employers are responsible for paying at least 9.5% of an employees’ earnings into a super, a figure set to rise over the coming years to accommodate the rising costs of retirement in the country.
Superannuation is also required to be paid for temporary employees and employees working on a visa – once they finish working for you and leave the country, they will be able to claim a Departing Australia super payment (DASP), so preparing for this is something to consider.
Depending on the nature of your business, there may be other taxes to pay such as land taxes (you’ll pay land tax on land and commercial properties that you own, but not on your home) and Fringe Benefits Tax (FBT), which is a tax that is payable by employees whose employees have received benefits (such as paying a family member rather than a salary). It is important that you understand the laws and tax processes associated with offering your employees fringe benefits, so speak with an accountant and register for FBT when you can.
Getting to grips with taxation in another country can be hard work, but it’s an essential part of the job of an entrepreneur. It is your responsibility to understand your personal and company requirements and obligations, and pay the necessary taxes monthly, quarterly or annually.
If you’re considering establishing a business in Australia, get in touch with the local specialists at Biz Latin Hub Australia. Contact Craig Dempsey, our Australian founder and CEO, on [email protected], to find out more about how we can help.