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.
Under currently enacted law, 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 2023/24 income year, after which the rate will progressively reduce to 25% for the 2026/27 and later income years. The reduced tax rate applies only to those companies who carry on business and who, together with certain 'connected' entities, fall below certain aggregated turnover thresholds. For the 2016/17 year, the aggregated turnover threshold is AUD 10 million; for the 2017/18 income year, AUD 25 million; and for the 2018/19 and later income years, AUD 50 million. The 27.5% rate for ‘small business’ entities subsequently will be reduced to:
- 27% for the 2024/25 income year
- 26% for the 2025/26 income year, and
- 25% for the 2026/27 and later income years.
Integrity measures are currently before Parliament to ensure that, from 1 July 2017, a company will not qualify for the reduced rate unless the passive income (including interest, rents, and net capital gains) that it derives represents no more than 80% of its total assessable income for the year.
There is a proposal to progressively reduce the corporate tax rate to 25% for all entities, not just those noted above, by the 2026/27 income year.
Local income taxes
There are no state or municipal taxes on income in Australia.