Business Operations in Australia provides basic information relating to the tax and general legal problems affecting a foreign business conducting its operations in Australia.  Written by John Walker, Partner, Baker & McKenzie, this Portfolio contains a detailed analysis of the Australian system of taxation applying to business operations in Australia.

This Portfolio begins with an overview of the regulations and processes governing business operations in Australia.  It identifies the incentives for and restrictions on foreign investment and provides details of the Australian banking system, trade and commerce regulations, securities regulations, and labor relations.

In addition to reviewing the various forms of doing business in Australia, this Portfolio summarizes the major taxes imposed, including income tax, goods and services tax, customs duty, excise duties, payroll tax, land tax, the superannuation guarantee charge, and.  The nature and extent of Australian income tax is then examined in detail as it applies to both  resident and nonresident companies and individuals, and partnerships.

Other topics discussed in Business Operations in Australia include the provisions of the Australian-United States tax treaty, the withholding tax provisions on dividends and interest, the taxation considerations of differing methods of doing business in Australia, the foreign investment guidelines, and tax incentive legislation.

The Worksheets included in this Portfolio contain regulations for the management of a limited company, income tax forms, and the text of the Australia-United States tax treaty. 

Business Operations in Australia allows you to benefit from:

• A perspective that addresses the concerns of foreign investors/enterprises and their advisors looking to invest/do business or already invested/doing business in the country
• Identification of those features of the country’s system that are likely to prove most problematic to outside investors
• Emphasis on those aspects of the tax system that impact transactions and structures with a cross-border dimension
• Information and insight to enable users to anticipate the pitfalls and opportunities likely to arise in making an initial investment, carrying on operations and devising potential exit strategies
• Invaluable practice documents including tables, charts and lists
• Time-saving citations to relevant sections of tax laws, regulations, court cases, and more

This Portfolio is part of the Foreign Income Portfolios Library, a comprehensive series containing more than 100 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource library offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in Italy, Business Operations in Puerto Rico, Branch ProfitsTax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.

Detailed Analysis

I. Australia - The Country, Its People and Economy

Introductory Material

A. Government

B. Development

C. Legal Framework

1. Legislature

2. Judiciary

3. Executive

II. Operating a Business in Australia

A. Foreign Investment Regulation

1. Incentives

a. Australia Regional Headquarter Provisions

b. Offshore Banking Unit (OBU) Concessions

c. Tax-Exempt Debt Investments to Australia

d. Venture Capital Concessions

e. Australian Films

f. Temporary Residents

2. Restrictions

a. General

b. Real Estate

(1) Rural Real Property

(2) Urban Land

B. Currency and Exchange Control

1. Currency

2. Banking System

3. Exchange Control

C. Trade and Commerce Regulation

1. General Regulation of Companies

a. Formation and Administration

(1) Shares

(2) Constitution

(3) Control

(4) Shareholder Meetings

(a) Statutory Meeting

(b) Annual General Meeting

b. Winding Up a Company

c. Reorganizations

2. Trade Regulations

a. Price Controls

b. Trade Practices Regulation

c. Financial Institutions Control

d. Foreign Takeover Restrictions

3. Securities Regulations

a. In General

b. Stock Exchanges

4. Patents, Trademarks, Trade Names, Registered Designs, Know-how and Copyrights

a. Patents

b. Innovation Patents

c. Trademarks

d. Trade Names

e. Registered Designs

f. Know-how

g. Copyright

D. Immigration

E. Labor Relations

F. Accounting

1. General

2. Accounting Periods

3. Accounting Standards

G. Resources and Energy Policy

III. Forms of Doing Business in Australia

Introductory Material

A. Sole Trader (Proprietor)

B. Partnership

C. Company

1. Incorporated with Limited Liability

2. Unlimited Company

3. No Liability Company

4. Foreign Company

5. Management of a Company

D. Branch

E. Trusts

F. Joint Ventures

G. Business Name

IV. Principal Taxes

A. History and Jurisdiction

B. Summary of Major Taxes Imposed

1. Income Tax (Which Includes Capital Gains Tax)

2. Customs Duty

3. Excise Duties

4. Estate and Death Duties

5. Gift Duty and Gift Tax

6. Payroll Tax

7. Land Tax

8. Stamp Duties

9. Local Government Taxes

10. Fringe Benefits Tax

11. Petroleum Resource Rent Tax

12. Superannuation Guarantee Charge

13. Goods and Services Tax (GST)

a. Registration

b. GST Groups

c. GST Branches and Joint Ventures

d. Determining Annual Turnover

(1) Current Annual Turnover

(2) Projected Annual Turnover

(3) Australian Taxation Office Discretion as to Turnover

e. Returns

f. Payments and Refunds

g. Penalties

h. Assessments

i. Objections and Appeals

j. Tax Invoices

k. Adjustment Notes

l. Tax Periods

m. Tax Accounting Basis

n. Input Tax Credits

o. Imports

p. Transitional Arrangements

(1) Contracts that Span Implementation of GST

(2) Second-hand Goods

14. Higher Education Contribution Scheme

V. Income Tax in Detail

A. Taxation of Resident Companies

1. What Is a Resident Company?

a. Public Companies

b. Private Companies

2. Calculation of Taxable Income

a. Accounting Period/Year of Income

b. Calculation of Assessable Income

(1) Foreign Income

(a) Foreign Branch Income

(b) Foreign Dividend Income

(c) Disposal of Non-portfolio Interest in Foreign Companies

(2) Consolidation

(3) Capital Gains

(4) Demerger Relief

(5) Tax Consequences of Share Buy-backs

(a) On-market Buy-back

(b) Off-market Buy-back

(6) Dividend Income

(7) Private Companies - Loans That Represent Distributions of Profits

c. Allowable Deductions

(1) Interest Cost to Acquire Foreign Shares

(2) Return on Share Capital Classified as a Debt Interest

(3) Employee Share Plans (ESS)

B. Taxation of a Nonresident Company

1. Taxation by Assessment

2. Withholding Tax

C. Resident Individuals

D. Taxation of Nonresident Individuals

E. Temporary Residents

F. Partnerships

G. Trusts

1. General

2. Trusts Taxed as Companies

H. Superannuation Funds

1. Complying Superannuation Fund

2. Governing Rules

a. Core Purposes

b. Ancillary Purposes

3. Fund Operation

a. Rule 1: Age of Member and Work Test

(1) Work Test

(2) Member Contributions

b. Rule 2: Member Contributions Where No TFN Is Provided

c. Rule 3: Fund-capped Contributions

d. Breach of Rules 1 to 3

4. Investment Returns

5. Preservation of Benefits

6. Portability

7. Payment of Benefits

8. Provision of Information

9. Investment Requirements

10. Regulatory Requirements

a. In General

b. Annual and Periodic Returns

c. Lodging a Copy of Auditor's Report

d. Newly Established Entities

e. Significant Adverse Events

f. Information at Request of a Regulator

g. Change in Fund Status and Other Information Requirements

I. Assessable Income

1. Generally

2. Income Specifically Assessable

a. Capital Gains

b. Trading Stock (Inventory)

c. Profit on Sale of Depreciated Property

d. Beneficial Interests

e. Retirement or Termination Payments

f. Employee Share Schemes (ESS)

(1) Qualifying ESS

(2) Non-qualifying Rights

(3) Capital Gains Tax Consequences

g. Insurance Recoveries

h. Annuities

i. Dividends

j. Reversionary Bonuses on Life Insurance Policies

k. Transfer of Right to Receive Income

l. Interest, Premium and Discount on Debt Securities

m. Natural Resources Income of Nonresidents

n. Offshore Commercial Activities of Nonresidents

o. Lease Incentives

p. Noncash Business Benefits

J. Allowable Deductions

1. General

2. Substantiation of Certain Expenses

a. Substantiation Rules for Motor Vehicle Expenses

(1) Business Proportion Basis

(2) Annual Vehicle Operating Costs Basis

(3) Vehicle Cost Basis

(4) Kilometers Traveled Basis

b. Business-related Travel Expenditure

c. Entertainment Expenses

d. Property-related Deductions

e. Prepaid Expenses

f. Deductibility of Audit Fees

g. Financing Costs

3. Deductions Specifically Allowable

a. Repairs

b. Depreciation

(1) Depreciable Assets

(2) Motor Vehicles

(3) Anti-avoidance

c. Bad Debts

d. Losses Caused by Malfeasance of Employee

e. Research and Development

f. Primary Production Expenditure

g. Charitable Contributions

h. Loss Carryovers

i. Superannuation (Retirement) Fund

j. Political Donations

k. Environment-related Capital Expenditure

l. Deductible Dividends

m. Treatment of Start-up Expenses

(1) Regional Headquarters

(2) General Start-up Costs

n. General "Residual Black Hole" Business Related Costs

K. Rates of Tax

1. Individuals

a. Rates

(1) Residents

(2) Nonresidents

b. Rebates/Offsets

(1) Dependent Rebate

(2) Medical Expenses Rebate

(3) Zone Rebates

c. Medicare Levy

d. Primary Producers

e. Farm Management Deposit Scheme

f. Performers, Production Associates, Athletes, Authors and Inventors

g. Taxation of Minors

(1) Residents

(2) Nonresidents

2. Partnerships and Trusts

a. Partnerships

b. Trusts

3. Superannuation and Approved Deposit Funds

4. Companies

L. Thin Capitalization

1. Outward Investing Entities

2. Inward Investing Entities

3. Consequences of Provisions Applying

M. Dividend Imputation System

N. Debt/Equity Provisions

O. Foreign Exchange Gains and Losses

1. Forex Realization Rules (FRE 1 to 5)

2. Ordering Rule for Fungible Currency, Rights and Obligations

a. Borrowings

b. Investments

c. Hedging Transactions

3. Rollover Relief for Facility Agreements (FRE 6 and FRE 7)

4. Application of the Realization Rules to Foreign Currency Bank Accounts (FRE 8).

5. Short-term Forex Realization Rules

6. Treatment of Currency Derivatives

7. Translation Rules

8. Functional Currency Rules

a. In General

b. "Old" Law

P. Intellectual Property

Q. Debt Defeasance

R. Tax Administration

1. Payment of Tax

a. Generally

b. PAYG

(1) Subdivision 12B

(a) Voluntary Agreement to Withhold

(b) Payment Under Labor Hire Arrangements or Payment Specified by Regulations

(2) Subdivision 12E

2. Tax File Number System

3. Collection of Tax, Interest and Penalties

4. Objections, Appeals and Reviews

5. Registration of Tax Agents

6. Tax Year

7. Tax Return Forms

8. Departmental Rulings

a. Public Rulings

b. Private Rulings

c. Oral Rulings

d. Non-binding Advice

9. Simplified Tax System

VI. Branch Office Compared with a Subsidiary Corporation

VII. Specific Items and Activities

A. Primary Production

B. Forestry Operations

1. Depreciation

2. General Deductibility: Forestry Management Investment Schemes

3. Specific Deductibility: Forestry Management Investment Schemes

C. Carbon Sink Forests

1. Background

2. Taxation Laws Amendment (2008 Measures No. 1) Bill 2008

3. Preconditions

4. Types of Qualifying Expenditure

5. Disqualified Expenditure

D. Shipping Industry

E. Livestock Values

F. Infrastructure, Mining and Environmental Incentives

1. Non-arm's-length Dealings

2. Mining, Quarrying or Prospecting Rights or Information

3. Exploration or Prospecting Expenditure

4. Pooled Expenditure

5. Rehabilitation

6. Environmental Protection Activities

G. Persons Engaged on United States Government Projects

H. Long-term Construction Contracts

I. Futures and Hedging Transactions

VIII. Anti-tax Avoidance Measures

A. General Anti-avoidance Rules

1. Scheme

2. Tax Benefit

3. Dominant Purpose

B. Disclosure Requirements - Overseas Transactions

C. International Profit Shifting

D. Crimes (Taxation Offenses) Act, 1980

E. Australian Taxation Office Access to Accountants' Papers

F. Cash Transactions

G. Tax Scheme Promotion Rules

1. Promotion of Tax Avoidance Schemes

2. Incorrect Use of Product Rulings

H. Asset Financing for Tax-preferred Entities

1. Application of Rules

2. Exclusions

3. Tax-preferred End Use

a. End User

b. Tax-preferred End User

c. Tax-preferred Entity

4. The 12-month Arrangement Period

5. The Financial Benefits Text

6. Entitlement to Capital Allowances

7. Predominant Economic Interest Test

a. The Limited Recourse Debt Test

b. The Right to Acquire Asset Test

c. The Effectively Non-cancellable Long-term Arrangement Test

d. The Level of Expected Financial Benefits Test

IX. Taxation of Other Business Entities

A. Pooled Development Funds

B. Venture Capital Limited Partnerships

C. Listed Investment Companies

D. Co-operatives

X. Controlled Foreign Companies

A. General

B. Threshold Requirements for CFC Rules to Apply

C. What Is a CFC?

D. Attributable Income

E. Statutory Accounting Period

F. Attributable Taxpayer

G. Attributable Percentage

H. Migration of a CFC

I. Foreign Controlled Trusts

J. Proposed Reform

XI. Foreign Investment Funds

A. General

B. The Operation of the FIF Rules

C. Black Listed Activities

D. "Balanced Portfolio" Exclusion

E. Trading Stock Exemption

F. Interests in Certain U.S. Entities

G. Complying Superannuation Entities and Life Insurance Entities

H. Assets Sold Before the End of the Year of Income

I. Calculation of Amount to Be Included Within the Australian Resident Investor's Assessable Income

J. Unitholders in the Australian Public Unit Trust

K. Foreign Life Policies

L. Proposed Reform

XII. Withholding Tax

Introductory Material

A. Interest Withholding Tax

1. When Does Division 11A Apply?

2. Definition of Interest

3. Consequences of Lender Having an IWT Liability

4. Exclusions from IWT

a. Offshore Banking Units

b. Sections 128F and 128FA of the ITAA 1936

c. Double Tax Treaties

d. Branch Banking Rules

e. Section 128B(3)(jb) of the ITAA 1936

B. Dividend Withholding Tax

C. Royalties

XIII. Double Tax Conventions and Unilateral Relief

A. Unilateral Relief

1. Foreign Tax Offsets

2. Exempt Foreign Income

3. Foreign-source Losses

B. Tax Treaties

C. Australia-United States Tax Treaty ("U.S. Treaty")

1. Introduction

2. Taxes Covered by the U.S. Treaty

3. Relief from Double Tax

a. Income Taxed on Source Basis

b. Income Taxed on Residence Basis

Working Papers

Table of Worksheets

Worksheet 1 Replaceable Rules Contained Within Corporations Law Applying Where Company Does Not Have Constitution

Worksheet 2 List of Comprehensive Double Taxation Agreements and Related Protocols Signed by Australia as of February 1, 2008

Worksheet 3 Designation Concessional Income for Section 23AH and CFC Purposes

Worksheet 4 Adjusted Tainted Income

Worksheet 5 Complete List of CGT Events

Worksheet 6 Taxpayers' Charter

Worksheet 7 Company Tax Return

Worksheet 8 Losses Schedule

Worksheet 9 Franking Account Tax Return

Worksheet 10 Schedule 25A

Worksheet 11 Thin Capitalization Schedule

Worksheet 12 Individual Tax Return

Worksheet 13 Partnership Tax Return

Worksheet 14 Fund Income Tax and Regulatory Return

Worksheet 15 Trust Tax Return

Worksheet 16 Family Trust Election and/or Family Trust Revocation

Worksheet 17 Interposed Entity Election

Worksheet 18 Effective Lives Determined by the Income Tax Assessment Act 1997

Worksheet 19 Fringe Benefits Tax Return

Worksheet 20 1982 Australia-United States Income Tax Treaty

Worksheet 21 2001 Protocol to 1982 Australia-United States Income Tax Treaty

Bibliography

OFFICIAL

Case Reports:

Cases:

Corporations Law:

Taxation:

UNOFFICIAL

Miscellaneous: