Accounting Bodies

An Australian Public Practicing Accountant is regulated by one of three major accounting bodies; The Institute of Chartered Accountants (http://www.icaa.org.au), Certified Practicing Accountants (http://www.cpaaustralia.com.au) and The National Institute of Accountants (http://www.nia.org.au). In addition, to be able to charge for preparing tax returns, accountants are required to be registered with the Australian Taxation Office as a registered tax agent.

The generally accepted reporting period in Australia is the year to 30 June.
Regulation in Australia in terms of accounts and Taxation are well developed and The Taxation System includes capital gains tax, goods and services tax and strong avoidance provisions.

Buying a Business in Australia

Buying a business in Australia follows many of the same principals as investment overseas. Financial Accounts in Australia are prepared using the standard format to permit comparisons between companies.

In acquiring smaller businesses many purchasers buy the assets and leave behind any creditors or liabilities of the previous owner. They can then choose the best trading entity to suit their own personal situation. It is worth noting that the use of trusts in Australia is extensive though many larger businesses prefer to only trade with Companies.

Registering Business names

Under the Australian government system each state of Australia is responsible for the registration of business names (where you trade other than as a company). Registering a company is done nationally through the Australian Securities and Investment Commission (“ASIC”).

          

Types of entities

The common forms of business entities are: Sole Trader, Partnership, Trusts (Discretionary, Unit and Hybrid), companies and superannuation funds. To date Australia does not have a Limited Liability Company (LLC in the US) or a Limited Liability Partnership (LLP in the United Kingdom).

Sole Traders

To trade in your own name you need to establish an Australian Business Number. All risks will be in your own name. For taxation purposes any business losses incurred while operating as a Sole trader are available to be offset against other forms of income.

Partnerships

Partnerships make each partner jointly and severally liable for all the debts of the partnership. Again the partnership will need to register an Australian Business number. Losses incurred by the partnership are available for the partners to offset against other taxable income.

Trusts

Under Australian Law a trust can be establish for a group of people and managed by another person (“The trustee” which is usually a Company). The trust is not a legal entity in its own right and is popular because it offers asset protection and tax benefits. Trusts were originally established in England in the 1500s when land owners left the land for an extended period and left control of the land (but not the title) to a friend to run it for the benefit of the landowner’s family.

A major disadvantage of a trust is where losses are generally held in the trust until they can be offset against future profits.

All companies operating in Australia are registered with the Australian Securities and Investments Commission (http://www.asic.gov.au) including Foreign Companies operating in Australia. Companies in Australia require at least one natural person as a director who is a resident of Australia and at least one shareholder. Other positions required for the establishment of a company include a company secretary and a public officer. One person who is a resident of Australia could hold all positions. Foreign Companies also need to nominate a local registered office.

Each year the company is required to report the positions and any changes to ASIC. This information is then publicly available on the website mentioned above.

Companies can be registered in several forms:

=    A private company (eg ABC Pty Ltd) where the transfer of the shares may be restricted by the Directors and the company is a Limited Liability entity.

=   A public company either listed or unlisted on the stock exchange

=   A no liability company which is used in the mining industry

Australia has 3 levels of government being Federal, State and Local Government. Federal Government is responsible for taxation in accordance with the powers it has been given under the Australian Constitution. These include income tax, Capital Gains Tax, Goods and Services Tax, import duties, royalties etc. These taxes are discussed further below.

State Governments impose taxes like Stamp Duty, Payroll Tax and Land Tax while Local Councils charge local council rates.

Stamp Duty is a tax charged on documents that transfer title. For example there is a Stamp Duty on buying and selling property, or even cars. There is no Stamp Duty on trading publicly listed shares.

Payroll tax – depending on the state there is a tax on the size of a businesses payroll.

Land tax – a tax exists on property that is not your private residence.
 

Residency

An Individual who is a resident of Australia is taxed on their worldwide income and given credit for any taxes paid overseas. Exceptions to this rule include where they are working overseas and a double tax agreement is in place with the country they are working in.
Under the Controlled Foreign Corporation legislation if a resident of Australia is controlling a foreign company it is considered to be an Australian Resident and taxed in Australia.
An Individual who is not an Australian resident for tax purposes is only taxed on their income in Australia. Their Foreign Income is not considered to be subject to Australian tax.
To be an Australian resident the taxpayer needs to be in Australia for 183 days in the financial year or has a permanent place of residence in Australia. As this is a complex area that is interpretive using case law it is sensible to get advice on this area.

For a Company to be an Australian Resident it needs to have its major decision makers in Australia.

The following is a summary of tax rates that are applicable for the financial year ended 30 June 2006:

Individual tax rates

The tax rates are on sliding scale as income increases.

                                                                       Resident       Non-Resident

0                    –                      6,000                      0%                   17%
6001             –                    21,600                   17%                   17%
21,601          –                    63,000                   30%                   30%
63,001          –                    95,000                   42%                   42%
more than   –                   95,000                    47%                   47%

Amounts in Australian Dollars

Company Tax rates – all income 30%  

Trusts – Income that is distributed to beneficiaries, either company or individual, are taxed at the beneficiaries tax rates.

Superannuation

Contributions into Superannuation funds are taxed at 15% if the person contributing is receiving a tax deduction. Income generated in a Superannuation Fund is taxed at 15%. When the funds are in a Superannuation fund are transfer to a Pension, once the person is over 55 years old, any income generated by the pension fund is tax free. The pension in the hands of the recipient is subject to normal tax with a 15% tax offset.

Goods and Services Tax

Any business doing more than $50,000 of business in Australia needs to register for GST and then is registered to complete monthly or Quarterly Business Activity Statement (BAS) and annual reconciliation.

The Goods and services tax in Australia is 10% and applies on purchases and sales of goods and services but does exclude some items including certain types of food. Australian Companies charging overseas companies for goods and services do not need to charge GST.

Other Tax Questions

Home
Principal place of residence is usually exempt from Capital Gains Tax if owned by an individual who lives in the house.

Capital Gains relief
If you own an asset for over 12 months only 50% on the gain on the sale of the asset is taxable at normal marginal rates. If the taxpayer owns the asset for less than 12 months then all the gain is taxable on sale.
There are a series of small business tax reliefs for owners selling their businesses.

Information supplied by:
Cabot Square Pty Ltd
Suite 53, 14 Narabang Way Belrose NSW 2085
Phone: +612 9485 0500 Fax: +612 9485 0505
Website: www.cabotsquare.com.au