Comparison of Tax Systems in Australia and Ghana

This report provides a comparison of the taxation systems in Australia and Ghana, focusing on residency tax, tax legislation, and international agreements. It discusses the differences in tax rates and the need for a double tax agreement between the two countries.

Running head: Australia`s Tax System 1
Australia`s Tax System
Student`s Name
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Australia`s Tax System 2
Executive Summary
This report provides embodies comparison system by analyzing and evaluating the key
elements of the taxation systems in Australia and Ghana. The research highlights the main
residency test for the basis of income tax in Australia. The two components are a resident and a
non-resident who must meet the necessary tests such as the 183 days test, resides, domicile and
Superannuation test. Extensive evaluation also reveals the current income tax rates of both
Australia and Ghana, noting that Australia has lower rates when compared to the other OECD
nations to be specific an income tax rate of 45%. The report further delves into the international
treaties between the two countries, and their sole purpose. There is no conclusive signed treaty
between the countries despite Australia having signed 40 double tax agreements with different
countries. This gives rise to a gap that will be solved when Ghana and Australia sign a double tax
agreement or an information treaty agreement to cement tax relations between the two countries.

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Table of Contents
Executive Summary.........................................................................................................................2
Introduction......................................................................................................................................4
Australian Taxation System.........................................................................................................4
Residency Tax in Australia..........................................................................................................4
Differences in Tax Legislations between Australia and Ghana...................................................5
International Agreements between Australia and Ghana............................................................6
Conclusion.......................................................................................................................................7

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Introduction
A substantial amount of research has been conducted on the components of a “good tax
system.” For instance, a good tax system should involve the distribution of the tax burden fairly
across a country’s population (Currie, 2016). The system should also be simple for a proper
implementation module that discourages noncompliance and any ensuing difficulties. An
efficient tax system embodies neutrality and prevents any possible occurrences whereby the
taxpayer`s decisions are influenced by the taxes they pay; this mostly happens when taxes alter
the cost of alternative goods or investment decisions (Radulescu, 2007). This paper will analyse,
compare and advice on the Australian and Ghana taxation system.
Australian Taxation System
The Australian Government highly depends on the revenue from taxation to efficiently
fund an expenditure covering areas like infrastructure, health and the education sector and has an
income tax rate of 45 %. It is mainly made up of 125 taxes including the Commonwealth taxes,
Australia`s tax level has been termed as relatively low in comparison to the other OECD nations
(Stokes and Wright, 2013). Despite this fact, the Australian taxation system has still not managed
to achieve a desirable taxing rate in terms of being equitable or even simple. For example in
2018, 50% of its revenue was generated from income and profit tax exhibiting a strenuous
burden on wages and salaries. More concisely, when compared to other OECD nations, Australia
had the highest tax burden on wages and salaries. The Government has however been adamant
on rectifying any slights flaws, with the latest strides being the 2009 Australia`s Future Tax
System and 2010 Tax Forum review. Not forgetting the 2017 income residency review which
what aimed at addressing the erupting issues on residency tax (Stokes and Wright, 2013)
Residency Tax in Australia
To be subject to the specific income rates, one must be conversant with the residency rules
that apply to them. Under subsection 6 (1) of the Income Tax Assessment Act 1936 (ITAA, 1936)
an individual is deemed to be a tax resident if the individual “resides “in Australia. A clear
definition of these resident rules means that an Australian Resident is taxed based on a
worldwide income while a non-resident is subject to taxation due to the income earned in
Australia. Under the income tax residency rules for individuals review the ATO prescribes the

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TR 98/17 taxation ruling which caters for individuals establishing a residency in Australia and
the IT 2650 taxation ruling for individuals ceasing residency by establishing a permanent place
of abode outside Australia (BDO Australia, 2018). The current rules involve:
a) The Resides Test- It mainly focuses an individual`s purpose in Australia such as family
and economic ties, the location and maintenance of their assets and any necessary social
and living arrangements they have made in Australia.
b) The Domicile Test-This considers individuals who do not reside in Australia but are
considered residences because their place of domicile is Australia. The exception is those
that have established a permanent place of abode outside Australia.
c) The 183-day Test-According to this test a person is considered a resident of Australia if
they have been physically present in Australia for 183 days or more.
d) The Superannuation test- According to this test, a person is an Australian Resident if they
belong to a Government public service superannuation funds.
There has however been a public outroar on the inefficiency of the current residency rules
which has been based on contradictory judgments brought by the TR 19/17 and IT 2650 and an
increased tax evasion rate. For example in the Harding v Commissioner of Taxation .Mr.
Harding was living and working in the Middle East for two years and had lived in several well-
furbished apartments. However, in considering whether the Australian Citizen was still a resident
and liable for taxation the court concluded that he was still an Australian Resident and had not
established a permanent place of abode outside Australia since the concept of his permanence
could not be proven. The Board of Taxation (BoT) has since submitted a self-initiated review of
the income tax residency rules that advocates for a two residency test model, it is still under
public consultation (Mardi, 2018).
Differences in Tax Legislations between Australia and Ghana
The main legislation concerned with the payment of income tax by individuals and
companies are, the Income Tax Assessment Act 1936, Income Tax Assessment Act 1997 which
was primarily meant to replace the old one but both are currently functional in Australia. The
main income tax legislation in Ghana is the Income Tax Act, 2015 (Act 896) which defines
nonresidents as individuals without any intention to establish a permanent residence in Ghana
and is only there for temporary purposes. (“Ghana Tax Guide”, 2013) According to s 55 of the

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Australian Constitution 1901, the Commonwealth parliament ensures there is only one subject of
tax, for instance, the excise duty, services tax, fringe benefits tax and each tax subject has a
subsequent imposition Act. Whereas in Ghana, most of the services and fringe benefits fall under
the Income Tax Act, 2015 (Act 896).
When comparing corporate taxation in both countries, Ghana records the most desirable rates.
The tax incentives provided by the Income Tax Act, 2015 enable a tax generation of 25% on all
companies exempting mining sector companies whose corporate tax rate is 35% (“ Doing
Business in Ghana”, 2018)
However, in Australia companies are susceptible to a federal tax rate of 30 % on their
taxable income, except small business which pays a reduced tax of 27.5%. These termed “small
companies “must not meet a threshold of AUD 50 million. Though resident companies, from a
country that has signed a Double Taxation Agreement (DTA), are only liable to taxation of
profits that are attributable to a permanent establishment (PE) in Australia. (“Australia Corporate
Taxes on Corporate Income”, 2018).
The distribution of health care financing burden across a socio-economic group has so far
been efficiently established in European countries, USA and Asia. African countries have also
managed to develop progressive health taxes, though equity is still an issue (Akazili, Gyapong
and Mclntyre, 2011). Hence Australia ultimately has better health tax legislation than Ghana.
The first is a Medicare levy of 2%, defined under section 251S of the Income Tax Assessment Act
1936(ITAA, 1936), and is taxable on every person. Australia has a Medicare Levy Surcharge
(MLS) of 1% designed to encourage people to take up private insurance; it enables private health
systems to play a role in Government revenue generation. In comparison, Ghana has a National
Health Insurance Levy of 2.5 % which was initially deducted from the VAT rate but was
restructured to the Education Trust Fund in August 2018.
International Agreements between Australia and Ghana
Australia has been a very active member in the Multilateral Convention to Implement
Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. Article 6 of the treaty
clarifies and discerns out any attempts to promote tax evasion or reduce taxation at the same
promoting the idea of economic development between countries. Moreover, Australian income

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Tax treaties are given force by the International Tax Agreements Act. An example is the Double
Taxation Agreement which has been signed with over 40 different countries like Germany, South
Africa, Denmark, France just to name a few. These agreements foster the prevention of tax
evasions and avoidance, develop taxing rights between different countries over the various
categories of income and allow the development of an efficient problem-solving authority in case
of any disputes (Australian Taxation Office, 2016)
The Organization for Economic Cooperation and Development (OECD) has developed a
system in the form of a treaty called Taxation Information Exchange Agreements (TIEAs). It
enables non-OECD jurisdictions to cooperate with OECD members in eliminating international
tax evasion and avoid through the effective exchange of information. Thus Australia can
exchange correct tax information about their domestic tax laws with non-OECD members. This
treaty was viewed as a way to control tax evasion on a larger scale without having to sign the
Double Tax Agreements. There is no direct tax agreement between Ghana and Australia at the
moment, though Ghana has signed a tax cooperation agreement similar to the TIEAs. It is a
project by OECD to further a cooperation system geared towards combatting tax avoidance and
evasion.
Conclusion
As analysed in this paper Australia has a federal and state taxing system, whereby the
Commonwealth collects most of the revenue and distributes it to the state. It is also very
established in international trade due to the involvement in many international taxing treaties. In
terms of health Australia has an efficient Medicare levy system that triumphs the 2.5% health
care levy of Ghana and a Medicare Levy Surcharge of 1 % on private health organizations aimed
at a better revenue collection for the health care system. The overall income tax rate of an
individual in Australia is 45 % on $ 180,000 while Ghana taxes 35% on $ 23515.99. Hence
Australia has lower taxes as compared to Ghana, ranging from the corporate tax, income tax and
inclusion of other tax incentives that reduce the burden on the population.

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References
Akazili, J., Gyapong, J., & McIntyre, D. (2011). Who pays for health care in
Ghana? International journal for equity in health, 10(1), 26.
Australia Corporate Taxes on Corporate Income. (2019). Taxsumarries. Retrieved 29th April
2019, from https://taxsummaries.pwc.com/ID/Australia -Individual-Taxes-on-Personal-
Income.
Mardi Heinrich, A. (2019). Australia – Individual Tax Residency Rules: Change. KPMG.
Retrieved 30 April 2019, from https://home.kpmg/xx/en/home/insights/2018/07/flash-
alert-2018-102.html
Doing business in Ghana. (2018). KPMG. Retrieved 30 April 2019, from
https://home.kpmg/gh/en/home/insights/2017/10/Doing%20Business%20in
%20Ghana.html
Ghana Tax Guide. (2013). 9PKF Worldwide Tax Guide 2013. 1-17. Pkf.com. Retrieved 30
April 2019, from https://www.pkf.com/media/1954395/ghana%20pkf%20tax%20guide
%202013.pdf
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion
and Profit Shifting (2018).
Stokes, A., & Wright, S. (2013). Does Australia Have A Good Income Tax System?. The
International Business & Economics Research Journal (Online), 12(5), 533.
BDO Australia (2018): Reform of the Income Tax Residency Rules for Individuals.
Bdo.com.au. Retrieved 30 April 2019, from
https://www.bdo.com.au/en-au/insights/tax/technical-updates/reform-of-the-income-tax-
residency-rules-for-individuals.
Radulescu, D. M. (2007). CGE Models and Capital Income Tax Reforms: The Case of a Dual
Income Tax for Germany (Vol. 601). Springer Science & Business Media.

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Currie, D. M. (2016). Country Analysis: Understanding Economic and Political Performance.
Routledge.
Australian Taxation Office, (2016). What are tax treaties? Ato.gov.au. Retrieved 30 April
2019, from https://www.ato.gov.au/General/International-tax-agreements/in-detail/What-
are-tax-treaties-/
Laws and Treaties
Income Tax Assessment Act 1936
Income Tax Act, 2015 (Act 896)
Australian income Tax treaties
Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and
Profit Shifting
Taxation Information Exchange Agreements (TIEAs)
Double Taxation Agreement (DTA)
The Australian Constitution (1901)