Companies, other than those that qualify as a CCIV (see below), 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 or medium business’ companies, which are subject to a reduced tax rate of 25%. 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.
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.
From 1 July 2022, a new tax and regulatory framework applies to corporate collective investment vehicles (CCIVs). In general terms, a CCIV is a type of a company limited by shares that is used for funds management and for which the tax law applies to ensure that the income and gains of the entity are taxed on a flow-through basis to the investors.
Global minimum tax and domestic minimum tax
Australia will be implementing the Global Anti-Base Erosion (GloBE) Rules, a key component of the OECD’s Two-Pillar Solution to address the tax challenges of digitalisation of the economy.
Specifically, the government proposes to adopt the following elements of the global minimum tax:
- The Income Inclusion Rule, which will apply for income years starting on or after 1 January 2024. This rule will apply to Australian multinationals and Australian entities that are subsidiaries of a foreign-headquartered multinational located in a jurisdiction that has not implemented this rule.
- The Undertaxed Profits Rule, which will apply for income years starting on or after 1 January 2025. Where no Income Inclusion Rule applies, the Undertaxed Profits Rule will apply to foreign multinationals that operate in Australia.
In addition, the government proposes a 15% domestic minimum tax applying to income years starting on or after 1 January 2024. This tax will apply to Australian operations of multinationals and will ensure that Australia retains taxing rights over undertaxed Australian profits.
The global minimum tax and the domestic minimum tax will apply to large multinationals with annual global revenue of 750 million euros (EUR) (approximately AUD 1.2 billion) or more, subject to certain exemptions.
Local income taxes
There are no state or municipal taxes on income in Australia.