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Corporation Tax & Australian Corporate Tax Rates

Corporation Tax & Australian Corporate Tax Rates

The Australian Taxation Office (ATO) oversees corporate income tax in Australia. Though the tax system can be complicated, professional advice is available to help you navigate the complexities of corporate income tax. There are several different types of business entities, including companies, trusts, overseas branches, corporate limited partnerships, and joint ventures or partnerships. The most common operational entity in Australia is an incorporated company. 

About Corporation Tax  

Corporate Tax is a company tax that the government collects from businesses. The government collects taxes from corporations to generate income. Corporate tax is beneficial to business owners because it's a lower rate of tax than filing as an individual income tax. The deductions also reduce a company's assessable income to reduce the amount of tax paid. 

Company tax rates vary depending on whether you are classed as a small business or a larger entity. Your assessable income dictates which rate you are liable to pay. The base rate entity for corporate tax is 25%. 

Company tax rates are based on taxable income. Assessable income refers to the total income earned by a company during a financial year that is subject to taxation, which is classed as revenue less the cost of goods sold, marketing, research, development, general and administrative expenses, depreciation, and various operating costs. 

While rates vary by country, certain countries are viewed as tax havens. However, most companies pay less than the statutory rate once deductions, loopholes, and subsidies are factored in. 

The company tax rate for businesses with a turnover of over $50m in a financial year is 30%. The company tax rate for businesses with a lower turnover is 25%. Taxable or assessable income is inclusive of a company's revenue streams, which includes income from services, sales, interest, capital gains, royalties, and dividends. 

Business expenses such as management fees, depreciation, payroll taxes, interest, and royalties are allowable deductions. Entertaining is not a deductible cost. You can deduct losses from prior years against your profits and gains if you pass the same business or owner test. 

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Tax Revenue 

There are state taxes that individual states and territories impose, including a 5% payroll tax, stamp duties, and land taxes. Goods and services tax is payable on most goods and services and is charged at a rate of 10%. When it comes time to lodge your tax return, separate returns are required for FBT, GST, and state taxes. It is also worth noting, income tax is paid in quarterly installments. 

Long service leave, holiday pay, and sick leave are not allowable deductions until the employee receives the award. You also cannot deduct interest on borrowings when the debt-to-equity ratio is more than 1.5:1. Withholding tax is still applicable to non-deductible interest. If an Australian company has foreign subsidiaries, the dividends are usually tax-exempt. This means you cannot claim credit for the withholding taxes you pay. 

You do not need to pay withholding tax on dividends from already-taxed profits. A 30% withholding tax rate applies to unfranked dividends. This may be reduced if you are faced with double-tax treaties. The tax treaties in place for Australia can be as low as 0% depending on the country involved. If treaties do not reduce your interest withholding tax, it is generally taxed at a rate of 10%. Withholding tax on royalties is taxed at a standard rate of 30% and treaties can reduce it to 10% or less. 

Using an online company as an example, the base rate entity of the Australian corporate tax rate breaks down as follows: 

  • The owner would like to expand the business, but that requires capital. 
  • The owner sets out to negotiate with potential supplies and in the meantime, places the capital in a term deposit. 
  • Last year, the company's aggregated turnover was less than the $50m threshold. 
  • The total assessable income was $124,000. 

As a result, they are liable for the base rate entity corporate tax rate, whereas an investment company with an assessable income of over $52 million is subject to the 30% corporate tax rate. 

How QuickBooks Taxes Can Help 

QuickBooks Tax Software can make life much easier – you can easily track your income over the year, track goods and services taxes, withholding taxes, and capital gains, and easily lodge your tax return. QuickBooks Taxes makes record-keeping simple and it’s all at your fingertips come tax season. 

In addition to using tax software to keep meticulous records, working with a professional financial advisor or tax agent to ensure you are entitled to the deductions you are claiming, and all of your supporting evidence is in place, can give you peace of mind when the time to file your taxes comes around. 

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