Australia

Last modified: 29/01/2025 05:13

Corporate taxation

	Rate
Corporate income tax rate	25% – Base rate entities1 30% – All other companies
Branch tax rate	25% – Base rate entities 30% – All other companies
Capital gains tax rate2	25% – Base rate entities 30% – All other companies

1. Base rates entities are entities that have an aggregated turnover of less than $50 million and receive less than 80% of their income from defined passive sources – base rate entity passive income (BREPI). BREPI includes (but is not limited to) interest income, certain dividends, net capital gains, rent and royalties.
2. Capital gains are not subject to a separate tax rate in Australia. Capital gains form part of taxable income and the gains are taxed at the corporate tax rate relevant to the entity.

Residence: Residence: A company will be considered a tax resident of Australia if it is incorporated in Australia. A company can also be a tax resident of Australia if it carries on a business and its central management and control is exercised in Australia or more than 50% of its voting power is controlled by Australian resident shareholders.

Basis: Resident companies are taxed on their worldwide income. Exemptions may be available for certain types of income e.g., foreign branch profits. Non-resident companies are taxed on the permanent establishment (PE)/branch income, certain other income derived from Australian sources (e.g., rent), and on the disposal of taxable Australia property (TAP). TAP includes (but is not limited to) Australian real property and indirect interests in real property. Branches are taxed in the same way as subsidiaries.

Taxable income: Corporate income tax is imposed on a company’s taxable income which is broadly a company’s assessable income (including foreign income and net capital gains) less allowable deductions. Exempt income and non-assessable non-exempt income (NANE) are not subject to tax in Australia.

Significant local taxes on income: Income tax is levied on a federal basis in Australia and no further income tax is payable to the States and/or Territories.

Alternative minimum tax: Australia has implemented Pillar Two which introduces a global minimum effective tax rate of 15%, targeting multinational enterprise (MNE) groups with consolidated global revenue exceeding €750 million. This framework is part of the OECD/G20 Inclusive Framework and aims to reduce profit-shifting and establish consistent tax rules across jurisdictions..

Taxation of dividends: Dividends are taxable for the recipient company. Non-portfolio dividends received by an Australian company that has more than 10% ownership in a foreign resident company are considered NANE and not subject to tax in Australia. Australia has a dividend imputation system and the payment of Australian corporate tax by a company will generate franking credits which may be passed on to shareholders through the payment of dividends. Franking credits prevent double taxation of income that has already been taxed at the company level and is then distributed to shareholders as a dividend. It follows that if a company receives a fully franked dividend, it would generally not have to pay further tax on the dividend.

Capital gains: Capital gains form part of a resident company’s assessable income. Capital gains tax is not a separate tax in Australia and all capital gains are assessed under the corporate income tax regime. Australian holding companies are not taxable on capital gains and losses from certain CGT events happening to shares it owns in a foreign company which has an underlying active business if it owns more than 10% of direct voting interests and the shares are held for at least 12 months in the two years before the disposal. The reduction in the capital gain or loss is based on the underlying active foreign business assets held by the foreign company.

Losses: Losses may be carried forward indefinitely and may be set off against any future income or capital gains provided the company passes the continuity of ownership test (COT) or one of the business continuity tests if COT is failed.

Foreign tax relief: Foreign-source income is included in assessable income and if withholding tax has been levied in a foreign jurisdiction, Australia will generally allow the company to claim a foreign income tax offset (FITO).

Participation exemption: See above under ‘Taxation of dividends’ and “Capital Gains’.

Holding-company regime: There is no holding company regime in Australia.

Tax-based incentives: Australia provides a tax incentive for eligible companies that incur expenses as part of eligible research and development (R&D) activities. Eligible taxpayers with an annual turnover of less than $20 million can claim a 43.5% refundable tax offset for R&D expenses. Eligible taxpayers with an annual turnover of greater than $20 million can claim a 38.5% non-refundable tax offset for R&D expenses. The digital games tax offset (DGTO) applies from 1 July 2022 and is a refundable tax offset which allows eligible companies that develop digital games in Australia to claim 30% of their total qualifying Australian development expenditure subject to certain requirements.

Group relief/fiscal unity: Where companies are wholly-owned by the same corporate owner, the group may elect to consolidate for tax purposes. Assets may be transferred intra-group at no gain/no loss if the entities are within a consolidated group. Furthermore, intra-group income and expenses are ignored for tax purposes.

Small company/alternative tax regimes: Base rate entities are subject to the 25% corporate tax rate.

Corporate taxation: compliance

Tax year: 1 July – 30 June (Substituted periods may be allowed where a company chooses to align its tax year with its accounting year).

Consolidated returns: Yes

Filing and payment: A self-assessment procedure applies. Filing deadlines depend on the company’s turnover.

Penalties: Start at $313 and can exceed $555,000 for significant global entities (SGEs).

Rulings: Private binding rulings may be obtained from the Australian Taxation Office on various Australian tax matters.

Taxation of individuals

Taxable Income – Australian Residents	Tax Payable
$0 – $18,200	Nil
$18,201 – $45,000	19 cents for each $1 over $18,200
$45,00 – $120,000	$5,092 plus 32.5% for each $1 over $45,000
$120,000 – $180,000	$29,467 plus 37% for each $1 over $120,000
$180,001 and over	$51,667 plus 45% for each $1 over $180,000

Foreign residents of Australia are taxed at higher rates. Australian residents are generally liable for Medicare levy at 2% on their taxable income.

Residence: Australian tax residents are generally taxable on worldwide income. Individuals are considered tax residents of Australia if they pass any of the following tests: • the individual resides in Australia according to ordinary concepts • the individual spends more than 183 days in Australia unless their usual place of abode is elsewhere • the individual’s domicile is in Australia unless they have a permanent place of abode elsewhere • the individual is a member of certain government superannuation schemes. In the 2021-2022 Federal Budget, the Government announced that it will modernise the tax residency rules listed above for individuals and introduce a primary “bright-line” test. Under this test, if the individual is present in Australia for 183 days or more during an income year, they will be considered an Australian tax resident. Even where the individual does not meet the bright line test, the individual still needs to consider secondary tests which look at various factors including a combination of physical presence and other objective criteria to determine whether they are an Australian tax resident. These changes are yet to be legislated.

Basis: Resident individuals (other than temporary tax residents) are taxed on their worldwide income and capital gains. Temporary tax residents of Australia are those tax residents who hold a temporary visa and are not married to or in a de-facto relationship with an Australian permanent resident or citizen. Temporary residents are only subject to tax on Australian-sourced income and certain types of foreign employment income. Temporary residents are not taxable on most types of foreign income including (but not limited to) overseas dividends, overseas interest, overseas rental income etc. Non-residents are taxed on Australian-sourced income (certain income is liable to final withholding tax and not subject to further tax in Australia (e.g., interest, dividends and royalties). Fully franked dividends are not subject to withholding tax in Australia and non-residents are not subject to further tax on fully franked dividends in Australia. Non-residents are only taxable on capital gains attributable to the disposal of TAP.

Taxable income: Income tax is levied based on a taxpayer’s taxable income, being assessable income less any allowable deductions. Most forms of income, including business income, wages and salary, dividends, interest and royalties, are taxable and are required to be declared on a taxpayer’s income tax return. Capital gains are also included in assessable income, although there are several exemptions and concessions which may apply. Resident individuals receive a 50% capital gains discount if they have held an asset for more than one year and were not foreign residents or temporary residents during the period of ownership of the asset – effectively, this means resident individuals pay tax on 50% of the capital gain.

Capital gains: Refer to “Taxable Income”

Deductions and allowances: Various expenses may be deducted in computing taxable income, including (but not limited to) interest on loans used for income-producing purposes, work-related deductions, and certain donations. Tax offsets are also available for certain taxpayers.

Foreign tax relief: Foreign-source income is included in assessable income and if withholding tax has been levied in a foreign jurisdiction, Australia will generally allow the individual to claim a foreign income tax offset (FITO).

Taxation of individuals: compliance

Tax year: 1 July – 30 June

Filing and payment: Self-assessment

Penalties: Penalties apply for late filing or failure to file. Start at $313 and can exceed $555,000 for significant global entities (SGEs).

Rulings: Private binding rulings may be obtained from the Australian Taxation Office on various Australian tax matters.

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Dividends – Fully Franked	0%	0%	30% (may be lower subject to DTA)	30% (may be lower subject to DTA)
Dividneds – Unfranked	0%	0%	30% (may be lower subject to DTA)	30% (may be lower subject to DTA)
Interest	0%	0%	10% (may be lower subject to DTA)	10% (may be lower subject to DTA)
Royalties	0%	0%	30% (may be lower subject to DTA)	30% (may be lower subject to DTA)
Capital gains	0%	0%	0%1	0%1
Fees for technical services	0%	0%	0%	0%

1. Disposal of certain assets by non-residents may be subject to non-final withholding tax in Australia. This can be claimed as a tax credit on lodgement of the tax return.

Branch remittance tax: Not applicable.

Anti-avoidance legislation

Transfer pricing: Australia has Transfer Pricing legislation and documentation requirements. Related party transactions have to be carried out at arm’s length terms. Generally, Australia follows OECD principles including CbC reporting requirements.

Interest restriction: Taxpayers are generally allowed a deduction for interest paid on loans and other debts if they relate to income-producing purposes. However, the thin capitalisation rules will limit a taxpayer’s allowable interest deductions where the taxpayer is a foreign entity operating in Australia, an Australian subsidiary of a foreign parent, or an Australian resident with foreign investments. The thin capitalisation rules need to be considered where an entity and its associates have debt deductions of greater than $2 million in income a year.

Controlled foreign companies: The CFC rules are in place to impose a tax on ‘tainted’ income earned by foreign companies owned or controlled by Australian resident taxpayers. The rules ensure that tainted income earned overseas is attributed to the Australian shareholder and is taxed accordingly in Australia. Through attribution, the rules ensure that income is taxed at the shareholder level without the need for the foreign company paying the amounts out as a dividend. The taxation of CFCs differs depending on whether the foreign country is resident in a listed or unlisted country.

Hybrid mismatches: Australia’s hybrid mismatch rules largely follow the OECD’s hybrid mismatch and branch mismatch rules from Action Item 2 of the OECD Base Erosion and Profit Shifting (BEPS) action plan.

Disclosure requirements: International related party dealings in excess of $2 million need to be reported separately in the tax return through an “international dealings schedule”. CbC reporting requirements for certain significant global entities.

Exit taxes: Refer to capital gains tax.

General anti-avoidance rule: Part IVA of the Income Tax Act is the general anti‑avoidance rule for income tax. It protects the integrity of the income tax system by ensuring that arrangements that have been contrived to obtain tax benefits will fail. Part IVA may apply in situations where a taxpayer has received a tax benefit from a scheme and it would be objectively concluded that the taxpayer entered into the scheme for the sole or dominant purpose of obtaining a tax benefit.

Digital services tax and Other significant anti-avoidance legislation: Goods and Services tax (GST) may apply to the sale of digital products in Australia.

Value-added tax/Goods and services tax

Type of tax: Goods and Services Tax (GST) applies to supplies of goods and services and to imports. There are a broad range of GST-free supplies (exempt but allowing for claim of input tax credits) and input taxed supplies (not subject to GST and input tax credits denied).

Standard rate: 10%

Reduced rates: Not applicable – certain supplies are not subject to GST e.g., financial supplies.

Registration: Businesses must register for GST where taxable supplies have exceeded AUD 75,000. Voluntary registration is possible if the supplies are below the threshold.

Filing and payment: Monthly, quarterly, or annual return period. Payment is generally by the due date of the statement.

Social security contributions

11.5% (eventually rising to 12% on 1 July 2025) of an employee’s wage is required to be paid into a superannuation fund (akin to a retirement fund). 

Self-employed

Individuals can make personal contributions into superannuation and claim a tax deduction for these contributions subject to additional requirements. Concessional contributions (capped at $27,500 in the income year) are subject to 15% tax within the superannuation fund. If an individual is a high income earning i.e., adjusted taxable income of more than $250,000, an additional 15% tax may be levied on concessional contributions. Contributions exceeding the concessional cap are subject to higher tax rates.

Other taxes

Capital duty: Not applicable.

Transfer tax: Transfer duty is Australia’s equivalent to stamp duty. The transfer of property, businesses and indirect interests in property may be subject to transfer duty in the relevant state. Non-residents may be liable to pay transfer duty at a higher rate. Exemptions may be available in certain circumstances.

Stamp duty: As above.

Net wealth/worth tax: Not applicable.

Inheritance/gift taxes: Not applicable.

Tax treaties

Australia has concluded over 40 double taxation treaties on income and capital gains and has a small number of tax information-exchange agreements. It is also a signatory to the OECD Multilateral Instrument.