Tax Returns in Australia – An Outline

In Australia, tax returns are generally due on October 31 for the year ending June 30 in the same calendar year. The financial year runs from July 1 to June 30. Contrast this with USA whose fiscal year runs from October 1 to September 30. Extensions to the due date are available, especially when the tax return is submitted via a tax agent. Tax returns may be submitted by post or electronically using the ATO’s e-Tax software.

The Australian taxation system is perceived to be quite complex and this view is supported by the fact that close to 80% of Australian’s use a tax agent to assist with the preparation of their tax returns.

Australian businesses may be required to pay taxes to all levels of local, state and federal governments. In Australia these taxes are used to pay for the delivery of public services such as the public hospital system and roads.

Australian tax law defines stringent reporting requirements in relation to tax returns in Australia. The returns you are required to submit are determined by your business structure and operating conditions. This outline considers sole traders, partnerships, trusts and companies. It also touches on the issue of fringe benefits tax.

Income Tax

Income tax is imposed by the Federal Government in Australia and so is consistent across all states. This has not always been the case. Prior to World War II income tax was imposed by the various State Governments. It is the most significant ax providing the greatest contribution to public revenue.

A company must lodge a company tax return. The income tax of the company is different from your personal income tax for which you need to lodge a personal return. The return will show the company’s net income which is the amount of income less allowed deductions. The corporate income tax rate is fixed at 30% of the net taxable income which is at a similar level to the United States, Mexico, New Zealand, Turkey and the United Kingdom (source: OECD Tax Database). Compare this to to Hungary’s 16% and the Slovak Republic’s 19% and at the other end of the scale, Spain with a corporate tax rate of 35%.

A Trust must lodge a trust tax return specifying its income less expenses and deductions. The beneficiaries of the trust, must also report any income or benefit received from the trust. This includes any assessable income such as salary, wages, dividends and rental income.

A partnership must lodge a partnership tax return. The return must show the net income which is calculated by subtracting expenses and other deductions from the gross income. Each partner must report their share of the partnership net income, salary or wage, dividends and rental income in their individual return.

A sole trader operates their business in the name of the owner. Their taxable income or loss is reported in their individual return as well as any other income in the form of salary and wages, dividends and rental income, minus any deductions that are allowed to be claimed against these amounts.

Both partnership and sole trader tax returns are effectively reporting on the income of the individual rather than on a corporate entity. Individual tax rates are calculated on a progressive scale as opposed to the corporate tax rate which is a flat percentage across the whole income range.

Business Activity Statement (BAS)

Businesses with turnover greater than $75,000 p.a. ($150,000 for non-profit organisations) are required to submit a GST return, commonly called a BAS. Business falling below the threshold may still elect to become GST registered and would then need to lodge a GST return. Except for Canada which has a value added tax rate of 7%, Australia’s GST, ay 10%, is the lowest in comparison to other countries. For example, New Zealand’s is 12.5%, the UK’s is 17.5% and Ireland’s is 21%. The GST system was introduced in Australia in July 2000 by the Howard Government and replaced other taxes such as the state based sales tax. The income derived from the GST is distributed to the states to enable the provision of state based public services such as education.

Fringe Benefit Tax (FBT)

Fringe Benefit Tax (FBT) is a tax that is paid on specific benefits employees, or their associates, receive from an employer in lieu of salary or wages. Common examples are: low interest loan, company car and some entertainment benefits.