CORPORATE TAXESSIGNIFICANT DEVELOPMENTS
The Corporations Law has been amended so that, subject to transitional rules, from July 1, 1998, shares in companies no longer have a par value, and companies no longer have share premium accounts and capital redemption reserves. Capital reductions no longer require court confirmation. Redeemable preference shares issued on or after July 1, 1998 may be redeemed only out of profits or fresh issue of shares made
for the purpose of redemption.
Complementary tax law changes applying from July 1, 1998 include antiavoidance rules to prevent the streaming of bonus shares in lieu of unfranked dividends and the streaming or conferring of capital benefits. New“tainting” rules may apply to share capital accounts.
The federal government has announced a tax reform program that would include a 10% goods and services tax (GST) to replace the existing wholesale sales tax on July 1, 2000. Also, certain state taxes would be abolished from the following dates.
1. Bed taxes-July 1, 2000.
2. Financial institutions duty and debits tax-January 1,2001.
3. Various stamp duties affecting business (but not on business real property)-July 1,2001.GST legislation has been introduced but has yet to pass the senate, where the government lacks a majority.
The federal government also proposes sweeping reforms of business taxes, including lowering the company tax rate, perhaps to 30%, and funding this through cutting back on business tax concessions, such as accelerated depreciation. Deferred company tax, which would tax dividends at the company level paid out of untaxed profits, is also proposed, but this proposal may be modified with regard to nonresident shareholders.
Software expenses were previously immediately deductible under income tax administrative practice. Legislation has been introduced that would in general allow software expenses to be deductible only over two and a half years when incurred from May 11,1998.
TAXES ON CORPORATE INCOME
Companies are subject to federal tax on their income at a flat rate of 36%. There are no state or municipal taxes on income.
Corporate residence
A company is a resident of Australia for income tax purposes if it is incorporated in Australia or, if not incorporated in Australia, it carries on business in Australia and either.
(1) its central management and control are in Australia or
(2) its voting power is controlled by shareholders who are residents of Australia.
OTHER TAXES
The federal government imposes customs duty, excise tax, sales tax, and a production levy on crude oil, some condensates and naturally occurring liquefied petroleum gas. Employers are liable to a fringe benefits tax levied at 48.5% on the taxable value of a fringe benefit (e.g., private use of a car) granted to employees. States impose a payroll tax, stamp taxes (including financial institutions duty), a tax on debits made to checking accounts, and land tax on land owned.
Municipalities levy rates (property taxes) on the unimproved value of land owned.
BRANCH INCOME
Branch profits are subject to ordinary corporate rates of taxation, and there is no withholding on repatriated profits.
INCOME DETERMINATION
Inventory valuation/Inventory may be valued at cost (full absorption cost), market selling value or replacement price. Where, because of obsolescence or other special circumstances, inventory should be valued at a lower amount, the lower valuation may be chosen, provided it is a reasonable valuation. LIFO is not an acceptable basis of determining cost, nor is direct costing in respect of manufactured goods and word-in-progress.
Conformity is not required between book and tax reporting. For tax purposes, inventory may be valued at cost, market selling value or replacement price, regardless of how inventory is valued for book purposes.
Capital gains/Capital gains tax applies to assets acquired on or after September 20, 1985, Capital gains realized on the disposal of such assets are included in assessable income and are subject to tax at ordinary rates of tax. In order to determine the quantum of any gain, the cost base is indexed according to price movements since acquisition, as measured by the official Consumer Price Index. Capital losses are allowable as deductions only against capita
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