Companies that are residents of Australia are subject to Australian income tax on their worldwide income. Generally, non-resident companies are subject to Australian income tax on Australian-sourced income only. However, where a company is resident in a country with which Australia has concluded a double taxation agreement (DTA), Australia's right to tax business profits is generally limited to profits attributable to a permanent establishment (PE) in Australia.
All companies are subject to a federal tax rate of 30% on their taxable income, except for ‘small business’ companies, which are subject to a reduced tax rate of 27.5% up to and including the 2019/20 income year. The reduced tax rate applies only to those companies that, together with certain 'connected' entities, fall below the aggregated turnover threshold of AUD 50 million (AUD 25 million for the 2017/18 income year). The 27.5% rate for ‘small business’ entities subsequently will be reduced to:
- 26% for the 2020/21 income year, and
- 25% for the 2021/22 and later income years.
Integrity measures also ensure that a company will not qualify for the reduced rate unless the specifically defined passive income (including, among other things, interest, rents, and net capital gains) that it derives represents no more than 80% of its total assessable income for the year.
The Australian government has abandoned its proposal to progressively reduce the corporate tax rate to 25% for all entities, not just those noted above.
Local income taxes
There are no state or municipal taxes on income in Australia.