Business Operations in Australia (Portfolio 7010)

Tax Management Portfolio, Business Operations in Australia, No. 7010, provides basic information relating to the tax and general legal problems affecting a foreign business conducting its operations in Australia. To view this Portfolio, visit Bloomberg Tax for a free trial.

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Description

Tax Management Portfolio, Business Operations in Australia, No. 7010, provides basic information relating to the tax and general legal problems affecting a foreign business conducting its operations in Australia.

The Portfolio contains a Detailed Analysis of the Australian system of taxation applying to business operations in Australia. The provisions of the Australian-United States Double Tax Convention, the withholding tax provisions on dividends and interest, the taxation considerations of differing methods of doing business in Australia, the foreign investment guidelines, tax incentive legislation, and restrictive trade practices legislation are discussed.

The Worksheets contain regulations for management of a limited company, income tax forms, the complete text of the Australian and United States Double Tax Convention, and related matters.

This Portfolio may be cited as Walker, 7010 T.M., Business Operations in
Australia
.

Authors

John Walker

John Walker, Bachelor of Economics (Macq); Bachelor of Laws (Macq); Masters of Law (Syd); Chartered Tax Advisor of Taxation Institute of Australia.

Table of Contents

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
g. Foreign Resident Superannuation Funds
h. Managed Investment Trusts
(1) What Is an MIT?
(2) Licensing Requirement for Wholesale Trusts
(3) MIT Checklist
(4) Tax Treatment of Distributions by an MIT Offshore
(5) Connection Outside Australia
(6) Exchange of Information Countries
(7) Taxation of Offshore MIT Beneficiaries
(8) No Deduction for Related Expenses
(9) Capital Gains Tax (CGT) Concessions
(10) Carried Interests
i. Investment Manager Regime
2. Restrictions
a. General
b. Real Estate
(1) Rural Real Property
(a) What Is Rural Land?
(b) What Is a Primary Production Business?
(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
1. In General
2. Significant Investor Visas
E. Labor Relations
1. Fair Work Act
2. Oversight and Enforcement Bodies
3. Minimum Conditions of Employment
4. Enterprise Agreements
5. Making Enterprise Agreements
6. Termination of Employment
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. Land Tax Surcharge for Absentee Owners — Victoria and New South Wales
9. Stamp Duties
10. Foreign Purchaser Surcharge Duty
11. Local Government Taxes
12. Fringe Benefits Tax
13. Petroleum Resource Rent Tax
14. Mineral Resource Rent Tax
15. Superannuation Guarantee Charge
16. 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 Tax Office Discretion as to Turnover
e. Business Activity Statements (GST Returns)
f. Payments and Refunds
g. Interest and Penalties
(1) Administrative Penalties
(a) Tax Shortfall Penalties
(b) “Failure to Lodge” Penalties
(c) Miscellaneous Penalties
(2) Taxation Offenses
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
(1) Importation of Goods
(2) Creditable Importations
(3) GST Deferral Scheme
p. Transitional Arrangements
q. Second-hand Goods
r. Reverse Charge of GST
17. Higher Education Loan Programme
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 Schemes
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
1. General
2. Partnerships Taxed as Companies
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
(1) Application to Common Types of Plans
(2) Reporting Obligations/Taxation of the Provider of ESSs
(3) Refunds if Rights Lapse
(4) Relationships Similar to Employment
(5) Stapled Securities
(6) Nonresidents and Temporary Residents
(7) Employee Share Trusts
(8) Payroll Tax
(9) ATO Guidance on Employee Share Schemes
(a) Reporting Requirements
(b) Tax-deferred ESS Interests
(c) Amendments
(d) Reporting to the ATO
(e) Transitional Arrangements
(f) Indeterminate Rights
(10) Market Value
(11) Real Risk of Forfeiture
(12) Deferred Taxing Point: Genuine Disposal Restrictions
(13) Board of Taxation Report Released on Employee Share Schemes
(14) Employee Share Scheme Regulations
(15) Old Law
g. Insurance Recoveries
h. Annuities
i. Dividends
j. Life Insurance Policies
(1) Tax Analysis for Policy Holders
(a) Bonuses
(b) Reversionary Bonuses
(c) Capital Gains Tax (CGT)
(d) Foreign Resident and Temporary Resident Policy Holders
(2) Tax Analysis for Foreign Life Insurers
(3) Nonresident Insurance Provisions
(4) Registered Life Insurance Company Provisions
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
h. Temporary Budget Repair Levy
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
P. Intellectual Property
Q. Taxation of Financial Arrangements
1. Applicable Entities
2. Exempted “Financial Arrangements”
3. “Financial Arrangement” Defined
4. Tax-timing Methods
R. Debt Defeasance
S. Small Business Entities
T. Tax Administration
1. Payment of Tax
a. Generally
b. PAYG
(1) Subdivision 12-B
(a) Voluntary Agreement to Withhold
(b) Payment Under Labor Hire Arrangements or Payment Specified by Regulations
(2) Subdivision 12-E — ABN Withholding
(3) Subdivision 12-H — MIT Withholding Tax
(a) In General
(b) Entities Other than MITs to Which MIT Withholding Rules Apply
(c) Details Required for a Payment Summary
(d) Penalties
(e) Reporting Requirements
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. Small Business Entities
VI. Branch Office Compared with a Subsidiary Corporation
Introductory Material
A. Will the Australian Branch of an Offshore Entity Constitute a Permanent Establishment?
B. What Will the Australian Office Do: Regional Office or Purely Carrying on Business in Australia?
C. Would an Australian Company Earn Concessionally Taxed Income?
D. Disposal of the Business
E. Australian Administrative Considerations
1. Corporate Requirements
2. GST
3. Thin Capitalization
4. Employees
5. Public Officer
6. ABN/TFN Withholding
7. Dividend Withholding Tax
8. Royalty Withholding Tax
9. Interest Withholding Tax
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. Capital Expenditure for the Establishment of Trees in Carbon Sink Forests
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
J. Emission Reduction Fund (ERF)
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
1. Application of Australian Transfer Pricing Rules
2. Basic Rule
3. Reconstruction Power
4. Permanent Establishments
5. Documentation, Limitation Periods and Penalties
D. Country-by-Country Reporting
E. The Multinational Anti-Avoidance Law (MAAL)
1. A Nonresident Makes a Supply to an Australian Customer
a. Generally
b. Financial Supplies Excluded
2. Nonresident's Income from the Supply Is Not Attributable to an Australian PE
3. Activities are Undertaken in Australia Directly in Connection With the Supply
4. Those Activities Are Undertaken Through an Australian Entity that Is an Associate, or Commercially Dependent, on the Offshore Supplier of the “Product”
5. The Scheme Was Carried Out for the Principal Purpose of Obtaining a “Tax Benefit” (a Reduction in Tax in Australia or Offshore)
a. What Does “Principal” Mean?
b. Obtaining a Tax Benefit
6. Quantum of Liability
a. ATO Administrative Guidance
b. OECD Commentary
c. Additional ATO Materials
F. Diverted Profits Tax
G. Crimes (Taxation Offenses) Act, 1980
H. Australian Taxation Office Access to Accountants’ Papers
I. Cash Transactions
J. Tax Scheme Promotion Rules
1. Promotion of Tax Avoidance Schemes
2. Incorrect Use of Product Rulings
K. 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. Cooperatives
E. Managed Investment Trusts
X. Controlled Foreign Companies
Introductory Material
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
XI. 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
XII. Double Tax Conventions and Unilateral Relief
Introductory Material
A. Unilateral Relief
1. Foreign Income 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 Countries with Which Australia Has In Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2017
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