Taxation in Australia

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Total tax revenue as a percentage of GDP for Australia over the past several decades compared to other first world nations.

There are many forms of taxation in Australia. Individuals and companies in Australia may be required to pay taxes or charges to all levels of government: local, state, and federal governments. Taxes are collected to pay for public services and transfer payments (redistribution of economic wealth).

Income taxes are the most significant form of taxation in Australia, and collected by the federal government through the Australian Taxation Office. Australian GST revenue is collected by the Federal government, and then paid to the states under a distribution formula determined by the Commonwealth Grants Commission.

Contents

History

Quarterly total taxation revenue ($millions) since 1959.

When the first Governor, Governor Phillip, arrived in New South Wales in 1788, he had a Royal Instruction that gave him power to impose taxation if the colony needed it. The first taxes in Australia were raised to help pay for the completion of Sydney's first gaol and provide for the orphans of the colony. Import duties were put on spirits, wine and beer and later on luxury goods.

After 1824 the Government of New South Wales raised extra revenue from customs and excise duties. These were the most important sources of revenue for the colony throughout the 19th century. Taxes were raised on spirits, beer, tobacco, cigars and cigarettes. These taxes would vary between each of the Australian colonies, and this state of affairs remained in place after the colonies achieved statehood - indeed, it still persists to this day.

Colonial governments also raised money from fees on wills and stamp duty, which is a tax imposed on certain kinds of documents. In 1880, the Colony of Tasmania imposed a tax on earnings received from the profits of public companies.

In 1884, a general tax on income was introduced in South Australia, and in 1895 income tax was introduced in New South Wales at the rate of six pence in the pound, or 2.5%.[1] Federal income tax was first introduced in 1915, in order to help fund Australia’s war effort in the First World War.[2] Between 1915 and 1942, income taxes were levied at both the state and federal level.[2]

In 1972, the government of William McMahon appointed the NSW Supreme Court judge Kenneth Asprey to conduct a full and wide ranging review of the tax system. Although controversial when completed for the Whitlam Government in 1975, the Asprey report on taxation has acted "as a guide and inspiration to governments and their advisers for the following 25 years." The main recommendations of the report have all been implemented and are today part of Commonwealth taxation in Australia.[3]

On 20 September 1985, Capital gains tax was introduced. The GST replaced the older wholesale sales tax in 2000. In July 2001, the Financial Institutions Duty was abolished. Between 2002 and 2005, Bank Account Debits Tax was abolished.

On the 1 July 2012 the Federal government introduced a Carbon price, a tax on selected fossil fuels, the revenue from which was used to reduce income tax (by increasing the tax-free threshold) and increase pensions and welfare payments, as well as introducing compensation for some affected industries.

Forms of taxes and excises, both Federal and State

Personal income taxes

Income taxes on individuals are imposed at the federal level. This is the most significant source of revenue in Australia. The state governments do not impose income taxes, and have not done so since World War II.

Personal income taxes in Australia are imposed on the personal income of each person on a progressive basis, with higher rates applying to higher income levels. Unlike some other countries, personal income tax in Australia is imposed on an individual and not on a family unit.

Individuals are also taxed on their share of any partnership or trust profits to which they are entitled for the financial year.

Capital gains tax

Quarterly taxation revenues derived from financial and capital transactions ($millions) since 1972

Capital Gains Tax (CGT) in the context of the Australian taxation system applies to the capital gain made on disposal of any asset, except for specific exemptions. The most significant exemption is the family home. Rollover provisions apply to some disposals, one of the most significant is transfers to beneficiaries on death, so that the CGT is not a quasi death duty.

CGT operates by having net gains treated as taxable income in the tax year an asset is sold or otherwise disposed of. If an asset is held for at least 1 year then any gain is first discounted by 50% for individual taxpayers, or by 3313% for superannuation funds. Net capital losses in a tax year may be carried forward and offset against future capital gains. However, capital losses cannot be offset against income.

Personal use assets and collectables are treated as separate categories and losses on those are quarantined so they can only be applied against gains in the same category, not other gains. This works to stop taxpayers subsidising hobbies from their investment earnings.

Corporate taxes

Companies and corporations pay company tax on profits. Unlike personal income taxes which use a progressive scale, corporate taxes in Australia are calculated at a flat 30% rate. Tax is paid on corporate income at the corporate level before it is distributed to individual shareholders as dividends. A tax credit (called a franking credit) is provided to individuals who receive dividends to reflect the tax already paid at the corporate level (a process known as dividend imputation).

Goods and Services taxes

Graph showing an increase to a peak of around 4000 in the year 2000, and an immediate drop to stay around 300-400 from then on.Graph showing a rise from around 6000 in the year 2000, to above 12000 in 2012
Quarterly Sales Tax revenues ($millions) since 1972, which were largely replaced by the GST in 2000
Quarterly Goods and Services tax revenues ($millions) since 2000

The Federal Government levies a value added tax of 10% on the supply of most goods and services by entities registered for Goods and Services Tax (GST). This tax system was introduced in Australia on 1 July 2000 by the then Howard Liberal government. A number of supplies are GST-free (e.g., many basic foodstuffs, medical and educational services, exports), input-taxed (residential accommodation, financial services, etc.), exempt (Government charges) or outside the scope of GST.

The revenue from this tax is distributed to the States.

State governments do not levy any sales taxes though they do impose stamp duties on a range of transactions.

In summary, the GST rate of 10% will be charged on most goods and services consumed in Australia. If you are registered for GST, you need to include GST in the price you charge your customers for goods and services they purchase from you (called sales). However, you will be able to claim a credit for the GST you have paid on your business expenses and other inputs (called a GST credit). You have to pay the difference between GST charged on sales and GST credits to the Tax Office periodically.

There are two types of sales which will be treated differently:

  1. Suppliers of GST-free goods and services will not have to pay GST when they make a sale but they will be entitled to GST credits.
  2. Suppliers of input taxed goods and services do not have to charge GST on sales but they will not be entitled to claim GST credits from their purchases of inputs.

Property taxes

Total quarterly (seasonally adjusted) land tax revenues ($millions) since 1972.

Local governments are typically funded largely by taxes on land value (council rates) on residential, industrial and commercial properties. In addition, some State governments levy tax on land values for investors and primary residences of high value. The State governments also levy stamp duties on transfers of land and other similar transactions.

Fire Service Levies are also commonly applied to domestic house insurance and business insurance contracts. These levies are required under State Government law to assist in funding the fire services in each State.

Excise taxes

Quarterly excise tax revenue ($millions) since 1973

The Federal Government imposes excise taxes on goods such as cigarettes, petrol, and alcohol. The rates imposed may change in February and August each year in response to changes in the consumer price index.[4]

Fuel taxes in Australia

The excise tax on commonly used fuels in Australia as of June 2006 are as follows:[citation needed]

Note: Petrol used for aviation is taxed at $0.02854 per litre

Luxury Car Tax

Luxury Car Tax is payable by businesses which sell or import luxury cars, where the value of the car is above $57,466, or $75,375 for fuel-efficient cars with a fuel consumption of less than 7L per 100km.[5]

Customs duties

Customs duties are imposed on many imported goods such as alcohol, tobacco products, perfume, and other items. Some of these goods can be purchased duty-free at duty free shops.

Payroll taxes

Quarterly payroll tax revenues ($millions) since 1972.

Payroll taxes are a tax paid by employers to Australian state governments. The tax amount is assessed on the basis of wages paid out by an employer. Payroll taxes in Australia are different in each state.

Payroll taxes in New South Wales

Employers, or a group of related businesses, whose total Australian wages exceed the current NSW monthly threshold, are required to pay NSW payroll tax. Monthly threshold:

Each monthly payment or 'nil' remittance is due seven days after the end of each month or the next business day if the seventh day is a weekend (i.e. August payment is due by 7 September). The annual reconciliation and payment or 'nil' remittance is due by 21 July.

Effective July 2007 - In NSW, payroll tax is levied under the Payroll Tax Act 2007 and administered by the Taxation Administration Act 1996.

Prior to 1 July 2007 - In NSW, payroll tax was levied under the Payroll Tax Act 1971 and administered by the Taxation Administration Act 1996.

Payroll taxes in Queensland

Companies or groups of companies that pay $1,100,000 or more a year in Australian wages must pay payroll tax.[7] There are deductions, concessions and exemptions available to those that are eligible. The current payroll tax rate is 4.75%.

Payroll taxes in South Australia

A Payroll Tax liability arises in South Australia when an employer (or a Group of employers) has a wages bill in excess of $600,000 for services rendered by employees anywhere in Australia if any of those services are rendered or performed in South Australia.[8]

Payroll taxes in Western Australia

Payroll Tax is a general purpose tax assessed on the wages paid by an employer in Western Australia. The tax is self-assessed in that the employer calculates the liability and then pays the appropriate amount to the Office of State Revenue, by way of a monthly, quarterly or annual return.

On 8 December 2004 new legislation was passed making it mandatory for an employer that has, or is a member of a group that has, an expected payroll tax liability equal to or greater than $100,000 per annum, to lodge and pay their payroll tax return via Revenue Online (ROL). This amendment to the Payroll Tax Assessment Act 2002 is effective 1 July 2006.

Fringe Benefits Tax

Quarterly Fringe Benefits Tax revenue ($millions) since 1972

Fringe Benefits Tax is the tax applied by the Australian Taxation Office to most, although not all, fringe benefits, which are generally non-cash benefits. Most fringe benefits are also reported on employee payment summaries for inclusion on personal income tax returns that must be lodged annually.

Inheritance tax

There is no inheritance tax in Australia, with Australia abolishing what was known as death duties in 1979.[9] However, assets acquired from the estate may become subject to Capital Gains Tax. When one inherits an asset as a beneficiary of the estate of a person who died on or after 20 September 1985, one must keep special records.

If the asset was acquired by the deceased person before 20 September 1985, one needs to know the market value of the asset at the date of the person's death and any relevant costs incurred by the executor or trustee. This is the amount that the asset is taken to have cost.

If the asset you inherit was acquired by the deceased person on or after 20 September 1985, one needs to know full details of all relevant costs incurred by the deceased person and by the executor or trustee. Request those details from the executor or trustee. Even if someone inherits a house that was the family home of the deceased person, they need to keep records of costs paid by the deceased person in case they are not able to claim a full exemption for the house after it is inherited.

Superannuation taxes

Private pensions (known as superannuation in Australia) may be taxed at up to three points, depending on the circumstances: at the point of contribution to a fund, on investment income and at the time benefits are received. In some circumstances, no tax is applicable at all.

The compulsory nature of Australian Superannuation means that it is sometimes regarded as being similar to social security taxes levied in other nations. This is more frequently the case when comparisons are being made between the tax burden of respective nations.

See also

Tax law:

Related:

References