[ESTABLISHING A BUSINESS ENTITY IN AUSTRALIA]
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Income Tax Returns Individuals and companies are generally required to lodge an annual income tax return at the end of each Australian financial year (which runs from 1 July to 30 June each year). The income tax rate applicable to Australian business structures will depend on the type of entity that conducts the business. For example, the income tax rate for Australian companies is generally fixed at 30%, except for those which qualify as a “Base Rate Entity” which have an income tax rate of 25%. Company Dividends and Tax Consolidation Dividends paid by Australian companies to Australian resident shareholders are subject to a dividend imputation system, whereby shareholders are entitled to franking credits for the tax that the company has paid on its profits (from which dividends are paid). The effect of franking credits is that dividends are ultimately taxed at each shareholder’s applicable income tax rate and are not taxed at the full rate at both the company and shareholder level. Australian corporate groups consisting of a parent company and a series of wholly owned subsidiaries are able to form what is known as a “consolidated tax group”. Consolidated tax groups are treated as a single entity for income tax purposes, and transactions within the group are often disregarded for the purposes of calculating income tax. Goods and Services Tax (GST) GST is a broad-based tax of 10% which applies to most goods, services and other items sold or consumed in Australia. GST is a multi-stage tax (similar to a Value-Added Tax) that is payable by suppliers at all levels of the supply chain. GST registered entities are entitled to claim refunds of the GST that they have incurred on their business inputs.
Businesses or individuals carrying on an enterprise that has (or is expected to have) an annual turnover of more than a specified amount are required to register for GST purposes. The GST component of a business’ sales must be reported to the ATO on either a monthly, quarterly, or annual basis by lodging Business Activity Statements (also known as BAS statements). Certain non-resident entities are eligible to access a simplified GST registration regime, whereby they may either be liable to the ATO or entitled to a refund at the end of each relevant reporting period. Whether an entity is required to make additional GST payments or is entitled to receive a GST refund will depend on the amount of GST collected through sales, when compared to any tax credits received from GST paid on goods and services purchased by the business in the course of carrying on their enterprise. Other Taxation Liabilities In addition to lodging annual income tax returns, companies and other corporate or business entities may also have taxation liabilities in respect of: • Capital Gains Tax (CGT) - CGT is imposed on the capital gains realized from the sale of certain assets. Assets that are sold by individuals or corporate entities that are considered Australian residents for tax purposes may trigger a CGT liability, even if the relevant assets were not located in Australia. • Fringe Benefits Tax (FBT) – Employers are required to pay FBT on the value of the non-cash benefits or allowances that they provide to their employees. The FBT rate for the year ending March 2025 is set at 47%.
ILN Corporate Group – Establishing a Business Entity Series
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