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Taxation in Australia


In Australia, taxable entities are resident companies and the permanent establishments of non-residents which derive income from an Australian source.

A company is resident in Australia for tax purposes if it is incorporated in Australia or, although not incorporated in Australia, it carries on business in Australia and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.

A permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on. It includes a sales outlet, a branch, a place of management, a factory, a workshop, an office or a dependent agent (who has authority to enter into contracts on behalf of the enterprise and habitually exercises that authority), but does not include a place where the person is engaged in business dealings through a bona fide commission agent or broker, a place where the person is carrying on business through an agent, or a place of business maintained by the person solely for the purpose of purchasing goods or merchandise.

Corporate income tax applies to a resident entity's worldwide income, including capital gains.

A foreign/non-resident who receives Australian sourced income (other than interest, 'unfranked' dividends or royalties from which tax has been withheld by the payer) must lodge a tax return in Australia and pay tax.

Consolidation allows wholly owned corporate groups to operate as a single entity for income tax purposes from July 1, 2002. A foreign-owned group of Australian resident subsidiaries that does not have a single resident head company may instead choose to consolidate by forming a multiple-entry consolidated group.

In 2010, the rate of corporate income tax in Australia is 30%. There is no alternative minimum tax.

Note: Unfranked dividends are dividends paid out of company profits which have not been subject to full Australian tax, or which were derived before 1 July 1986. Such dividends are taxable in the hands of shareholders at their marginal rate.

Calculation of Taxable Income

Taxable income includes trading income, unfranked dividends, capital gains and the profits of non-resident subsidiaries.

Dividends received from other resident companies are included in taxable income unless they have been “franked” under the Australian imputation system, under which companies that have paid Australian corporate income tax pass on to their shareholders an equivalent 30% franking credit for the tax paid on profits when distributing those profits.

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