What we know is
Unsurprisingly, in an increasingly global economy, investors and business alike want to know what’s the deal when it comes to business tax in Australia.
Business tax deductions vary
Companies that do not qualify as a CCIV (as explained below) and are considered residents are liable to pay income tax on their global income, as expected. Nothing new there. But typically, non-resident companies are only subject to Australian income tax on income generated within Australia. It is important to remember that if a company is a resident of a country that has entered into a double taxation agreement (DTA) with Australia, the Australian government’s authority to tax business profits is typically restricted to profits linked to a permanent establishment (PE) located in Australia.
All companies are obligated to pay a federal tax rate of 30% on their taxable income, except for ‘small or medium-sized business’ companies, which are eligible for a reduced tax rate of 25%. This reduced tax rate is applicable solely to companies that, in combination with specific ‘connected’ entities, do not exceed the aggregated turnover threshold of AUD 50 million. (That will likely be the vast majority of the business owners reading this document)
Integrity measures are in place to guarantee that a company is ineligible for the reduced rate. Unless the passive income, which includes items like interest, rents, and net capital gains, constitutes less than 80% of its total assessable income for the year.
Starting from July 1, 2022, a fresh tax and regulatory framework has been implemented for Corporate Collective Investment Vehicles (CCIVs). In simple terms, a CCIV is a specific type of company structured as a limited liability entity with shares. It primarily serves the purpose of fund management. That will then operate under tax regulations designed to ensure that the entity’s income and profits are subject to taxation in a manner that flows through to the investors.
GLOBAL AND DOMESTIC MINIMUM TAX
Australia is set to adopt the Global Anti-Base Erosion (GloBE) Rules, a crucial element of the OECD’s Two-Pillar Solution aimed at tackling tax challenges arising from the digitalization of the economy.
The government intends to embrace the subsequent components of the global minimum tax:
Income Inclusion Rule (Effective from 1 January 2024):
- Applies to Australian multinationals.
- Applies to Australian entities that are subsidiaries of foreign-headquartered multinationals in jurisdictions without this rule.
Undertaxed Profits Rule (Effective from 1 January 2025):
- Applies to foreign multinationals operating in Australia.
- Comes into play when the Income Inclusion Rule does not apply.
In addition to all that, the government is suggesting the introduction of a 15% domestic minimum tax, effective from income years commencing on or after 1 January 2024. This tax will be on the Australian activities of multinational corporations. It is basically an attempt to guarantee that Australia maintains the ability to tax profits generated within the country.
Both the global minimum tax and the domestic minimum tax will be applicable to large multinational enterprises with annual global revenues exceeding 750 million euros (EUR), equivalent to approximately AUD 1.2 billion, with specific exemptions considered.
Well, other than that, as you may already know (if you are reading this) – There are no state or municipal taxes on income across the country.