Business hints, tips, advice and services for Australians and migrants
A SHORT FORM - BUSINESS PROFILE
INTRODUCTION
Australia has an area of 7.7 million square
kilometres and comprises six States and two Territories. Approximately
65% of the population live in the capital cities with the remainder
living mainly in coastal areas or in medium to small rural towns.
Over the last 40 years there have been large numbers of migrants from Europe and Asia, who have substantially influenced the tastes, outlooks and attitudes of the indigenous population.
Over the last 40 years there have been large numbers of migrants from Europe and Asia, who have substantially influenced the tastes, outlooks and attitudes of the indigenous population.
As at June 2000 the population was 19.2 million (Source: Australian Bureau of Statistics).
EXCHANGE CONTROL - INTERNATIONAL INVESTMENT
The Reserve Bank of Australia administers the exchange controls
regulations within Australia. However most exchange controls have been
repealed in recent years.
The Financial Transaction Reports Act 1988 (formerly
the Cash Transaction Reports Act 1988) was introduced by the Federal
Government to counter tax evasion, the cash economy and money
laundering. Effectively all transactions, other than exempt
transactions, must be reported.
Reportable transactions which the Act encompasses include:-
(i) cash dealings - currency transactions exceeding $10,000;
(i) cash dealings - currency transactions exceeding $10,000;
(ii) transfers of Australian currency or foreign currency (exceeding $10,000 in value) into or out of Australia;
(iii) suspect transactions.
The reporting requirements are imposed on cash dealers as defined and the public generally and solicitors.
Non-Residents and entities with foreign interest may make direct investments and establish new businesses in Australia. There are however some restrictions on foreign investment and some proposals by foreign interests require prior approval by the Foreign Investment Review Board (FIRB), a non statutory body which advises the Government on foreign investment policy and its administration. The Government's foreign investment policy is framed and administered with a view to encouraging foreign investment and ensuring that such investment is consistent with the needs of Australia.
The types of proposals by foreign investors requiring prior approval include:
- significant overseas holdings in large Australian businesses
- establishment of large new businesses
- acquisitions of interests in urban land
- investment in specific industries such as banking, media, mineral production.
BANKING & FINANCE
The banking system in Australia is controlled by the Federal
Government through Australia's central bank, the Reserve Bank of
Australia. Generally the functions of the Reserve Bank are to supervise
the banking sector and to formulate and implement banking and monetary
policy.
Following the deregulation of the financial markets in the 1980's, the Reserve Bank no longer controls the exchange rate, foreign currency holdings or the lending policies of trading and savings banks.
A further relaxation in policies in the early 1990's has resulted in the lifting of the former restrictions imposed on the number of foreign banks authorised to conduct banking in Australia.
Following the deregulation of the financial markets in the 1980's, the Reserve Bank no longer controls the exchange rate, foreign currency holdings or the lending policies of trading and savings banks.
A further relaxation in policies in the early 1990's has resulted in the lifting of the former restrictions imposed on the number of foreign banks authorised to conduct banking in Australia.
Categories
There are four major nationwide trading banks, all of which are publicly traded on the stock exchange. These banks offer a full range of banking services.
There are four major nationwide trading banks, all of which are publicly traded on the stock exchange. These banks offer a full range of banking services.
The smaller State and regional based trading and
savings banks are generally financially backed by Government or
statutory bodies. These also offer a wide range of services but with
limited national facilities.
Overseas banks operate in the State capital cities.
Generally they target specialised areas of the market rather than
provide a full range of services.
Building societies and credit unions compete with the
major trading banks in the consumer and domestic lending sector. A
large number of locally owned and international merchant banks also
compete with the major trading banks in the higher end of corporate
finance.
TYPES OF BUSINESS ENTERPRISE
The common forms of business enterprise in Australia are companies,
partnerships and joint ventures, trusts, sole traders, branches and
representative offices of overseas corporations.
The type of company most commonly used for commercial purposes is that limited by shares. Such companies must have at least one shareholder, one Australian resident director and an Australian resident secretary.
Foreign companies intending to commence business in Australia will normally choose between forming a subsidiary company or establishing a branch.
If a branch structure is preferred, a foreign company must first register with the ASIC and appoint a local agent. Thereafter it must file a copy of the company=s accounts annually with the ASIC. Separate branch accounts do not need to be filed but are required for tax purposes. A foreign company remains liable for all debts and other contracted obligations of the branch.
Individuals may wish to operate as a sole trader, form a company or a trust, or may find a partnership more suitable to their requirements.
The type of company most commonly used for commercial purposes is that limited by shares. Such companies must have at least one shareholder, one Australian resident director and an Australian resident secretary.
Foreign companies intending to commence business in Australia will normally choose between forming a subsidiary company or establishing a branch.
If a branch structure is preferred, a foreign company must first register with the ASIC and appoint a local agent. Thereafter it must file a copy of the company=s accounts annually with the ASIC. Separate branch accounts do not need to be filed but are required for tax purposes. A foreign company remains liable for all debts and other contracted obligations of the branch.
Individuals may wish to operate as a sole trader, form a company or a trust, or may find a partnership more suitable to their requirements.
COMPANY ADMINISTRATION
A public company must have at least three directors, of whom at least
two must be resident in Australia. A proprietary company must have at
least one director, who must reside in Australia. The company secretary
must be a natural person resident in the State of incorporation.
The first annual general meeting (AGM) of members must be held within 18 months of incorporation. Subsequent AGM=s must be held at least once a year within 5 months of the end of the financial year. A proprietary company, unless specifically requested by shareholders, need not hold an AGM if it complies with certain provisions.
The purpose of an AGM is to approve the annual accounts, decide on the payment of a dividend, elect directors and auditors and deal with any other business relevant to the members.
The first annual general meeting (AGM) of members must be held within 18 months of incorporation. Subsequent AGM=s must be held at least once a year within 5 months of the end of the financial year. A proprietary company, unless specifically requested by shareholders, need not hold an AGM if it complies with certain provisions.
The purpose of an AGM is to approve the annual accounts, decide on the payment of a dividend, elect directors and auditors and deal with any other business relevant to the members.
- Meetings
General meetings can be conducted using any form of technology. Publicly listed companies will be required to give 28 days notice and 21 days for all other companies. In the case of a proprietary company a general meeting may be held by circulating the resolution signed by all members (except a resolution to remove an auditor).
Share Capital - Shares do not have nominal or parvalues
- Companies limited by shares do not have an authorised or nominal share capital
- The number of shares a company can issue is unlimited.
ACCOUNTING AND REPORTING REQUIREMENTS
Effective from 15
July 2001 the Corporations Act and the Australian Investment and
Securities Act 2001 became operative. Together with ancillary statutes,
they replace the former Companies Act and Codes, which operated on a
State basis.
The ASIC is the administering authority for companies. The ASIC has responsibility for regulation of companies, takeovers, futures trading and securities.
Companies are required to keep records in the English language and these records must be retained for at least 7 years. Accounts, if required, must be prepared each financial year and lodged with the ASIC. This depends on the classification attributed to the company.
Any date may be adopted for a company’s financial year end, but it would normally be the same as for the holding company, if applicable, or 30 June to coincide with the close of the tax year.
The required contents of a company=s accounts are specified in detail in the Corporations Act, approved Accounting Standards (which have the force of law) and Australian Accounting Standards (required by the professional accounting bodies). Listed companies must also comply with Australian Stock Exchange listing requirements.
The Corporations Law requires that accounts of all disclosing entities, public companies, large proprietary companies, registered schemes and small proprietary companies that are controlled by a foreign company for all or part of the year must be audited, laid before the AGM for approval and filed with the ASIC. Exemptions are available to small companies when the accounts are consolidated into the foreign corporations financial statements and are lodged with the ASIC. Exemption is also available for foreign controlled companys not part of a large group.
A small proprietary company is a company whose consolidated position indicates:
The ASIC is the administering authority for companies. The ASIC has responsibility for regulation of companies, takeovers, futures trading and securities.
Companies are required to keep records in the English language and these records must be retained for at least 7 years. Accounts, if required, must be prepared each financial year and lodged with the ASIC. This depends on the classification attributed to the company.
Any date may be adopted for a company’s financial year end, but it would normally be the same as for the holding company, if applicable, or 30 June to coincide with the close of the tax year.
The required contents of a company=s accounts are specified in detail in the Corporations Act, approved Accounting Standards (which have the force of law) and Australian Accounting Standards (required by the professional accounting bodies). Listed companies must also comply with Australian Stock Exchange listing requirements.
The Corporations Law requires that accounts of all disclosing entities, public companies, large proprietary companies, registered schemes and small proprietary companies that are controlled by a foreign company for all or part of the year must be audited, laid before the AGM for approval and filed with the ASIC. Exemptions are available to small companies when the accounts are consolidated into the foreign corporations financial statements and are lodged with the ASIC. Exemption is also available for foreign controlled companys not part of a large group.
A small proprietary company is a company whose consolidated position indicates:
(i) gross assets of less than $5,000,000;
(ii) gross turnover of less than $10,000,000;
(iii) employs less than 50 employees.
To qualify as a small proprietary company two of the above criteria must be satisfied.
The following exemptions are afforded to a small proprietary company:
The following exemptions are afforded to a small proprietary company:
(i) need only one shareholder and one director;
(ii) in specific circumstances will not be required to prepare annual accounts in accordance with accounting standards;
(iii) will not be required to hold a formal annual meeting; or
(iv) have its financial accounts audited.
TAXATION OF COMPANIES
Company tax in Australia is a Federal income tax. It is levied at a
flat rate, regardless of the size or structure of the company. Effective
from 1 July 2001 the corporate tax rate is 30%. The timing of payment
of income tax is dependent on the quantum of tax payable.
The principles determining the income upon which tax is levied are contained in the Income Tax Assessment Acts of 1936 and 1997. The rates are contained in the Income Tax Rates Act. The income tax law is administered by the Commissioner of Taxation which is based in Canberra, the Federal Capital.
A company which is resident in Australia is liable to Australian income tax on all its assessable income which is not specifically exempt, less allowable deductions with a credit for qualifying foreign taxes paid.
A non-resident company is liable to income tax only on assessable income derived from sources in Australia.
Assessable income includes the income calculated by normal accounting concepts, with specified adjustments, and certain capital gains. Normally tax losses can be carried forward indefinitely or transferred amongst group companies, for offset against future profits.
For income tax purposes a company is either a public or private company. Generally a public company is defined as one in which the shares are listed on a stock exchange anywhere in the world or is a subsidiary of such a company.The significance of the distinction between public and private companies has been greatly diminished with further restrictions on inter-company dividend rebates.
Australia has adopted a dividend imputation system, which operates to impute Australian tax paid at the company level to resident individual shareholders. Effectively the tax paid at the company level is passed on to shareholders in the form of franked dividends.
The principles determining the income upon which tax is levied are contained in the Income Tax Assessment Acts of 1936 and 1997. The rates are contained in the Income Tax Rates Act. The income tax law is administered by the Commissioner of Taxation which is based in Canberra, the Federal Capital.
A company which is resident in Australia is liable to Australian income tax on all its assessable income which is not specifically exempt, less allowable deductions with a credit for qualifying foreign taxes paid.
A non-resident company is liable to income tax only on assessable income derived from sources in Australia.
Assessable income includes the income calculated by normal accounting concepts, with specified adjustments, and certain capital gains. Normally tax losses can be carried forward indefinitely or transferred amongst group companies, for offset against future profits.
For income tax purposes a company is either a public or private company. Generally a public company is defined as one in which the shares are listed on a stock exchange anywhere in the world or is a subsidiary of such a company.The significance of the distinction between public and private companies has been greatly diminished with further restrictions on inter-company dividend rebates.
Australia has adopted a dividend imputation system, which operates to impute Australian tax paid at the company level to resident individual shareholders. Effectively the tax paid at the company level is passed on to shareholders in the form of franked dividends.
TAXATION OF INDIVIDUALS
As with company taxation, income tax is imposed on individuals by the Federal Government.
Resident individuals are liable to Australian income tax on all their assessable income. Non-resident individuals are liable to income tax only on assessable income derived from sources in Australia. As for companies, this is calculated by normal accounting concepts with specified adjustments and includes certain capital gains.
Tax rates for individuals increase with the level of taxable income. For resident individuals tax is imposed on taxable income in excess of the tax-free threshold.
The tax-free threshold (currently $6,000) is available on a pro-rata basis to a taxpayer first joining the Australian workforce on a full-time basis or taking up or ceasing Australian residence during a tax year.
Tax is deducted at source under the PAYG (Pay As You Go) system for employees. Other tax instalment systems also apply to individual taxpayers under the PAYG system. These replaced earlier instalment systems, such as Prescribed Payments, Reportable Payments and Provisional Tax Systems.
Resident individuals are liable to Australian income tax on all their assessable income. Non-resident individuals are liable to income tax only on assessable income derived from sources in Australia. As for companies, this is calculated by normal accounting concepts with specified adjustments and includes certain capital gains.
Tax rates for individuals increase with the level of taxable income. For resident individuals tax is imposed on taxable income in excess of the tax-free threshold.
The tax-free threshold (currently $6,000) is available on a pro-rata basis to a taxpayer first joining the Australian workforce on a full-time basis or taking up or ceasing Australian residence during a tax year.
Tax is deducted at source under the PAYG (Pay As You Go) system for employees. Other tax instalment systems also apply to individual taxpayers under the PAYG system. These replaced earlier instalment systems, such as Prescribed Payments, Reportable Payments and Provisional Tax Systems.
There is also a compulsory health insurance levy
(Medicare). Higher income individuals (>$50,000) and families
(>$100,000) who do not have private patient hospital cover will pay
an extra 1% of their taxable income for the medicare levy surcharge.
This is in addition to the normal 1.5% Medicare levy.
CAPITAL GAINS TAX
Capital gains tax (CGT) applies to profits on the sale of non-trading
assets acquired or deemed to have been acquired after 19 September
1985.
Concessions apply within the legislation to lessen
the impact of CGT, including 50% discount of the assessable gain for
individuals and trusts disposing of assets which they have held for more
than twelve months. Companies do not qualify for this concession.
Non residents are only subject to CGT on the disposal of assets which have the necessary connection to Australia. This term includes shares in private companies (not listed companies) and real property.
Non residents are only subject to CGT on the disposal of assets which have the necessary connection to Australia. This term includes shares in private companies (not listed companies) and real property.
WITHHOLDING TAXES
Withholding tax must normally be deducted from interest or unfranked@
dividends (i.e. dividends paid otherwise than out of taxed company
income) paid to non-residents. Similarly income tax must normally be
deducted from royalty payments.
A new non-resident withholding tax regime is due to commence on 1 July 2002. Details have not been finalised.
FOREIGN SOURCE INCOME
Australia has adopted a very complex system for the taxation of
foreign source income. Depending on the particular circumstances tax is
either imposed when the foreign income is derived or as it accumulates
in a controlled foreign company or trust.
THIN CAPITALIZATION
From 1 July 2001, a new thin capitalization regime applies. It
applies to disallow a proportion of finance expenses (e.g. interest)
when the amount of debt allocated to the Australian operations of both
Australian and foreign multinational investors exceeds specified
limits. The limits are different for banks and non-banks.
A de minimus rule applies where debt deductions do not exceed $A250,000.
A de minimus rule applies where debt deductions do not exceed $A250,000.
OTHER TAXES/CHARGES
Federal
Fringe benefits tax is a Federal tax payable by all employers on benefits, other than exempt benefits, provided to employees. The tax is payable by quarterly installments under a self-assessment system. The tax payable is generally 48.5% of the grossed up value. This rate is subject to change in certain circumstances.
Customs and excise duties are imposed on a range of goods manufactured in or imported into Australia.
Goods and Services Tax (“GST”) is imposed at the rate of 10% on the making of a taxable supply. “Taxable Supply” includes importations – in this case GST is payable by the importer and not the overseas supplier. For taxpayers registered for GST, credits are available in respect of GST paid on inputs. GST is payable on a quarterly or monthly basis.
Superannuation Guarantee Scheme requires all employers to provide a minimum level of superannuation support for all full-time, part and casual employees. The required percentages for 2001/02 is 8%.
State
Payroll tax is based on the gross salaries and wages paid by an employer. Certain bodies and employers with small payrolls are exempt. The rates and wages thresholds vary between the States and Territories.
Land tax is a tax levied on the value of freehold property. Rates and conditions vary between the States and Territories.
Stamp duty is chargeable on certain documents, legal and other. The rates of duty vary between the States and Territories. No stamp duty is payable on transfer of shares in listed companies.
Fringe benefits tax is a Federal tax payable by all employers on benefits, other than exempt benefits, provided to employees. The tax is payable by quarterly installments under a self-assessment system. The tax payable is generally 48.5% of the grossed up value. This rate is subject to change in certain circumstances.
Customs and excise duties are imposed on a range of goods manufactured in or imported into Australia.
Goods and Services Tax (“GST”) is imposed at the rate of 10% on the making of a taxable supply. “Taxable Supply” includes importations – in this case GST is payable by the importer and not the overseas supplier. For taxpayers registered for GST, credits are available in respect of GST paid on inputs. GST is payable on a quarterly or monthly basis.
Superannuation Guarantee Scheme requires all employers to provide a minimum level of superannuation support for all full-time, part and casual employees. The required percentages for 2001/02 is 8%.
State
Payroll tax is based on the gross salaries and wages paid by an employer. Certain bodies and employers with small payrolls are exempt. The rates and wages thresholds vary between the States and Territories.
Land tax is a tax levied on the value of freehold property. Rates and conditions vary between the States and Territories.
Stamp duty is chargeable on certain documents, legal and other. The rates of duty vary between the States and Territories. No stamp duty is payable on transfer of shares in listed companies.
INTERNATIONAL TAX AGREEMENTS
International tax agreements have been entered into with over
40countries Generally, the treaties avoid the double taxation of income
by allowing foreign tax credits.
EMPLOYMENT AND INDUSTRIAL RELATIONS
The employment relationship is regulated by laws,
both of the Commonwealth and State Parliaments. Many of the conditions
are set out in awards and employment contracts, which cover specific
parties to an agreement or classes of occupation.
Awards, employment agreements and legislation cover hours of work, annual leave,sick leave, long service leave, minimum rates of pay, physical working conditions and workers= compensation insurance requirements.
Approximately a third of all employees being affiliated with a union.
Foreign nationals (other than New Zealanders) are prohibited from working in Australia unless they hold a migrant visa, unconditional temporary entry permit or working holiday visa.
Awards, employment agreements and legislation cover hours of work, annual leave,sick leave, long service leave, minimum rates of pay, physical working conditions and workers= compensation insurance requirements.
Approximately a third of all employees being affiliated with a union.
Foreign nationals (other than New Zealanders) are prohibited from working in Australia unless they hold a migrant visa, unconditional temporary entry permit or working holiday visa.
