TAXATATION LAW 4: Taxation of Foreigners and Implications in Australia

This report provides a comprehensive overview of Australian taxation law as it pertains to foreign residents and businesses. It begins by defining foreign residents within the context of Australian taxation, highlighting that they are primarily taxed on income derived from Australian investments. The report then details the different types of taxes that affect businesses, including Company Tax, Capital Gains Tax (CGT), and Goods and Services Tax (GST), differentiating the treatment of foreign entities from resident companies. It discusses tax treatments specific to foreigners, such as exemptions on interest, dividends, and royalties, as well as the impact of tax treaties. Furthermore, the report explores the role of the agricultural sector in the Australian economy and the implications of foreign investment in this sector, including the involvement of the Foreign Investment Review Board (FIRB). It examines the risks associated with foreign investment, such as transfer pricing and thin capitalization, and concludes with recommendations to address these implications. The report draws on multiple sources to support its analysis of the taxation of foreign entities.

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Taxation Law
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Definition of foreigners (including businesses) in Australian Taxation Law
Foreign residents are mainly taxed as per the income they are able to earn from their
investments in Australia. Taxes in Australia are mainly administered and collected by the
Australian Tax Office (ATO), in some cases, however, the state government revenue offices can
collect and administer taxes. From time to time, businesses opt to take advantage of the existing
concessions by paying taxes in the correct amounts on time (Kirchner, 2012, pp.410-421). There
are three classes of taxes by the Australian government that affect businesses; these are Company
Tax, Capital Gains Tax (CGT) and the Goods and Services Tax (GST).
Under the company tax, a company that is resident in Australia is subject to the company
tax and is charged at the rate as set by the Australian government (Anon, 2019). For companies
that are non-resident, the taxes applied under company tax is mainly based on the Australian
source of income at the same rate as the company that is resident. However, it should be noted
that the rate of taxation may vary depending on the circumstances such as the type of industry in
which the company is and the business structure of the company (Sheng, Jackson and Gooday,
2015).
Identify the tax treatments which are different to foreigners (comparing with
residents for taxation purpose)
Under the Capital Gains Tax(CGT), any capital gains that are made through any form of
asset disposal is to be paid in the form of income tax, this basically means that the payment will
be as part of the income tax. Capital Gains Tax also applies to the foreign entities and remains as
subject to CGT, this includes the assets that are acquired in Australia and have been used to carry
out business in Australia. Under CGT, the government will require all the businesses that have

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acquired any form of assets in Australia to provide a form of written information and record
pertaining to the acquisition and use of assets. However, small businesses may benefit through
some of the CGT concessions under some circumstances.
Goods and Services Tax(GST) is a form of consumption tax that is administered on most
of the goods and services that are sold and consumed locally in Australia. The Australian
Taxation Office often requires that the businesses are able to register with them. Businesses that
have been able to pay for the business supplies will be entitled to input tax credit and hence some
of the businesses will be eligible to GST concessions. Payroll Tax is a form of tax that is paid as
a result of the wages that are paid to the employees, its basic calculation is based on the amount
of the total wages paid in the course of the month and must be paid in the event that the total
amount exceeds the set threshold for the state or territory of payment (Sheng, Jackson and
Gooday, 2015). This, therefore, means that the payroll tax will vary from one state to another.It
should also be noted that there could exist other forms of business taxes that could be levied
through the Australian government, state and even the territory government based on some form
of business activities. These taxes include those paid as land tax and Fringe Benefits.
Businesses and foreign investors should be able to review these taxes first before
undertaking to apply hence depending on one's case. As a foreign resident in Australia, tax is
generally exempted from any forms of interest, unranked forms of dividends and royalties that
are due to the Australian government. Upon notifying the Australian financial institution of the
existence of your foreign resident status, the tax will be withheld and the time of making the
payment. This means that the foreigner won’t need to make some form of the declaration with
regard to the Australian tax return(Ato.gov.au, 2019). The existing tax rates for foreign residents
will be subject to whether the foreigner is from a treaty country or non-treaty country. In terms of

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the interest rate for the non-treaty countries, a 10% tax will be applied but it will depend on the
nature of treaties between the two countries in the case of a foreigner from a treaty country.
Unranked dividends stand at 30% for countries that are non-treaty yet it stands at 15% for the
countries that have some form of a treaty with Australia (Forsyth, Dwyer, Spurr and Pham, 2014,
pp.98-109). In terms of royalties, foreigners from non-treaty countries will have to pay an
approximate of 30% while those from treaty countries could pay as less as 15% depending on the
nature of the agreement between Australia and the country.
The Australian agricultural sector plays a central role in supporting the economy, this
means that it plays a vital role in the social, economic and environmental sustainability. There
are more than 100,000 agricultural businesses in Australia in which over 80% are owned directly
or indirectly by Australian citizens. The overall food supply of Australia is pegged on
Agriculture with over 90% being locally produced. Australian farmers remain an essential
component of the economy as well as its fabric playing a major role in the process of
sustainability for both the local as well as international communities. Agriculture has over time
continued to play a vital role in the prosperity of Australia as a whole and in building the wealth
of the nation over time (Drysdale and Findlay, 2009). This explains why it has been considered
by the government as one of the key national pillars.
By having a stronger agricultural sector, the government is able to promote job creation,
more income from abroad as well as better services to the Australian citizens. The well-being of
the national economy, however, continues to be dependent on the general environment that is
presented by the government. The government has a central role to play in terms of encouraging
economic growth without having to impose any forms of unnecessary costs, it is due to this
reason that the Australian government has been working overtime in order to ensure that the tax

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system is efficient and not only focused on raising revenues (Andersen, Asheim, Mittenzwei and
Veggeland, 2012, p.980).
It should, however, be noted that the government faces expenditure constraints and that
any form of tax reform is geared towards the long terms economic growth(Sheng, Jackson and
Gooday, 2015). From time to time, the Australian government has been engaged in policy
debates with regard to the agriculture sector, the main goal of the policy debates is to be able to
come up with the best form of competitiveness in the sector as a whole(Ato.gov.au, 2019). One
of the factors that have been put into place is tax reform as a form of accelerating productivity
and economic growth while also ensuring that the overall financial stability is attained.
In terms of investing in the agricultural sector in Australia, investment should be
considered to include a variety of sources as well as perspectives. It ranges from the process in
which individuals as new participants could choose to directly invest in the industry through
plays such as the farmers, institutional investors, annulations funds, international investment and
even any other ordinary Australian citizens who are seeking to make some form of passive
investment in the agricultural sector (Clyne, 2011, pp.69-80). The process of investing does
involve the process in which avenues for possible financing in the sector is created enabling the
existing participants to extend their investment.
In terms of the ability to attract investment to the agricultural sector, Dominic
McCormick observed that "The case for agriculture exposure in investment portfolios remains
convincing. The middle-class growth in emerging economies and the associated increased
protein consumption is one of the major positive factors as is the declining supply of readily
available arable land per person. Locally, the recently announced Free Trade Agreement with

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China and other Asian countries provides a further boost with tariffs for a range of agricultural
commodities reduced over time. Over the very long-term agriculture in many countries has
offered attractive pre-tax returns and strong diversification benefits showing little correlation
with equities and bonds (Drysdale and Findlay, 2009). However, the general perception from an
investment perspective is that the operating profitability from many agriculture businesses is
poor, is quite volatile and is subject to a range of uncontrollable factors such as commodity
prices and weather. Hence, significant/consistent land price increases are required (but by no
means certain) to make overall acceptable returns", this means that despite the fact that the
industry in itself has many strong promising prospects there remains little equity as a result of
direct investment.
Discuss the implications of the identified treatments to foreigners
There are a number of risks that may be associated with foreign investment to the
national interest of Australia as a result of land usage. Consequently, this has led to the need to
obtain approval from the Foreign Investment Review Board which tasked with handling the
interesting acquisitions of agricultural land the policy governing the acquisition process dictates
that the value of the land to be owned by the foreign person should not be more than $15 million.
The law under the Foreign Investment Review Board also limits the process of taking any
form of direct interest in agribusiness; this means that for anyone who is seeking to make a direct
investment of more than $55 million will need to seek approval from the body (McKissack and
Xu, 2016). However for countries that have been able to make treaties with Australia, the
threshold can be adjusted before approval is made, these countries include Thailand, USA, Chile,

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New Zealand, and Singapore. The application fees involved in order to seek approval from the
body ranges from $5000 to $100000.
As at from February 2016, a law was passed that required that any foreigner who has an
interest in agricultural land to register the same interest in the Agricultural Land Register.
Foreign investment, however, has posted a series of challenges in terms of taxation, for instance,
there exists a series of legislation in terms of international taxation jurisdiction on the rates of
taxes that are to be levied. Some of the tax rates happen to be lower than those that are being
used in Australia; such a situation encourages the taxpayer to opt to tax his profits from outside
of Australia. This means that the disparities that exist in tax treatments end up creating arbitrage
for sources that are non-residents and lack of decision structuring (Ato.gov.au, 2019).
A perfect example is when a non-resident earns some interest income, it generally means
that they remain subject to the 10% withholding tax in Australia; this measure has been put in
place in order to encourage investors to lend their funds to Australians. Dividends that have not
been franked are generally still subject to a 15% withholding tax in Australia and that the non-
residents will not be able to enjoy the benefits from imputation credits that are excess.
Recommendations
Some of the implications that have arisen as a result of the identified treatments include
the fact that Australia has been forced to transfer any form of pricing provision. The provision
was created with the sole intention of ensuring that the value that has been brought up or created
in Australia is taxed and retained in Australia. To buffer against risks that may arise trading with
a lower tax jurisdiction state, and losing income, the transfer pricing provisions ensure that the

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transaction is done as per the market value and utilize evidence from the market in ensuring that
the true market price is supported (Drysdale and Findlay, 2009).
It has also led to thin capitalization provisions; this legislation was created with the sole
aim of cautioning Australia from big cooperation’s that seek to shift profits out of the country by
funding their operations mainly based on debt(Anon, 2019). This goal is met by mainly limiting
the deductions for the interest expenses as well as the borrowing costs. As a recommendation,
while there is a need to prevent any form of tax revenue leakage there is needed to still have the
measure of balance(Ato.gov.au, 2019). Compared to transfer pricing where there is a significant
cost associated with the process of production, the risks that may arise as a result of tax leakage
should still be put into consideration through the pricing documentation. In case there is evidence
from the market regarding the value of the transaction, there will not be any form of mischief and
hence businesses should be allowed to carry on.

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References
Anon, 2019. [online] Available at: https://www.mla.com.au/globalassets/mla-corporate/research-
and-development/documents/industry-issues/final_taxinag-dec-2016
Anon, 2019. [online] Available at: https://www.mla.com.au/globalassets/mla-corporate/research-
and-development/documents/industry-issues/final_taxinag-dec-2016 [Accessed 20 May 2019].
Ato.gov.au. 2019. Foreign residents doing business in Australia. [online] Available at:
https://www.ato.gov.au/business/international-tax-for-business/foreign-residents-doing-business-
in-australia/ [Accessed 20 May 2019].
Drysdale, P. and Findlay, C. 2009. Chinese foreign direct investment in Australia: policy issues
for the resource sector1. China Economic Journal, 2(2), pp.133-158.
Sheng, Y., Jackson, T. and Gooday, P. 2015. Resource reallocation and its contribution to
productivity growth in Australian broadacre agriculture. Australian Journal of Agricultural and
Resource Economics, 61(1), pp.56-75.
Forsyth, P., Dwyer, L., Spurr, R. and Pham, T., 2014. The impacts of Australia's departure tax:
Tourism versus the economy?. Tourism Management, 40, pp.126-136.
Alston, J. and Carter, C., 2011. Causes and consequences of farm policy. Contemporary
Economic Policy, 9(1), pp.107-121.
Andersen, F.G., Asheim, L.J., Mittenzwei, K. and Veggeland, F., 2012. Taxation of Agriculture
in selected countries. Study of The United States, Canada, Australia, Germany, United Kingdom,

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Ireland, France, Switzerland and Italy with relevance to the WTO. Norsk institutt for
landbruksøkonomisk forskning.
Clyne, M.G., 2011. ‘Second Generation’Foreigner Talk in Australia. International Journal of the
Sociology of Language, 1981(28), pp.69-80.
Kirchner, S., 2012. Foreign direct investment in Australia following the Australia–US free trade
agreement. Australian Economic Review, 45(4), pp.410-421.
McKissack, A. and Xu, J., 2016. Foreign investment into Australia (No. 2016-01). The Treasury,
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[Accessed 20 May 2019].