Corporation Tax: Key Elements Australian Companies Must Know

  1. Tax Rate In Australia On a Global Scale

The first report generated by OECD an organization for economic development and co-operation in Australia compares business tax rate in the country with 100 other countries around the world. The finding is interesting. It states Australia is one of those countries that charge the highest tax rate to its corporate world.

This is rate is currently stable at 30 percent, which is higher than many of its challenger nations such as South Korea, Canada, United States, New Zealand, Britain and Norway. Additionally, to the dismay of corporate entities, Australia has been offering the lowest direct subsidies as well as tax breaks for actual development and research programs in the country.

  1. In a Nutshell

There has been a global trend regarding corporation tax rate and most countries across the globe have put the effort to lower taxes to corporations. Changes to tax rates have taken place both at home and abroad in Australia. All these, in response to the United States slashing its company tax rate from 35% to 21% – a whopping 14 percent decrease in one year.

This information talks about the current taxation environment in Australia that will affect almost all businesses of various sizes. It also notes the current corporate tax rates based on revenue.

  1. A Little Tax Relief Goes A Long Way

Since the year 2000, the tax rate in Australia has been constant without a reduction in sight. That all changed in the year 2017 when the government passed an ordinance in the name of Enterprise Tax Plan reducing the rate from the exorbitant value of 30 percent to 27.5 percent, a big relief considering the annual turnover of the companies this reduction applies to. Currently, the turnover limit for these eligible companies is $50 million. So, any corporation making this amount or less are charged at the rate of 27.5% over the next four years.

The Australian government then came forward with the introduction of a new bill in 2018 to lower taxes for small and medium businesses, referred to as Treasury Laws Amendment. For base rate entities, this bill would reduce the tax even further in the upcoming years, even accelerate those reductions. Larger companies with a turnover of over $50 million will still have to pay the prescribed 30 percent tax.

  1. Resident Tax Rate In Australia

Every company business structure in Australia is taxed as a standalone legal entity and these businesses do their own tax return each year. In order to lodge the tax return, the business should state its income, deductions, its liability to employees in terms of income tax, profits and other information on paper. Note that there is no tax-free threshold for these business entities.

As stated earlier, the current tax rate for the financial year 2019 stands at 30 per cent. The small business tax rate is at 27.5%. A base rate entity which has an aggregated turnover of less $50 million and is active in business should, therefore, pay the lower tax rate of 27.5%. If the company end up in a turnover of $50 million or more, this rate would be 30   as usual. However, there are a few exceptions to this rate depending on the type of industry as well as NFP.

One significant change that has taken place with regards to tax in 2019 and that of the previous year is that the base amount of turnover has been increased from $25 million to $50 million. As for the next year, the tax rate for the corporation will remain the same as that of 2019.

  1. Foreign Tax Rate In Australia

Foreign tax rate in Australia is very similar to resident tax rate. The Australian source of income is taxed at the rate of 30 per cent for non-resident large businesses and 27.5 per cent for small businesses. Under certain circumstances though, the tax rate, as well as the taxable income, may vary.

The factors include the type of industry, size of industry and business structure. In essence, companies that reside in Australia but operate on an international level are only subjected to income generated inside the country. The government has created double taxation treaties with at least 40 countries. Through this treaty, businesses and legal entities are able to avoid double taxation on their income.

  1. Future Tax Rate In Australia

As for the fiscal year 2019, the ongoing tax rate of 27.5% and 30% depending on the business will remain the same. The turnover threshold amount will increase from $25 million to $50 million. The tax rate for the year 2021 is set to reduce to 25 percent, a 5 percent reduction from the peak tax rate. However, there to be no changes to the turnover limit at least for the next two years.

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