Taxation Law: Comparing Tax Treatments for Foreigners and Residents

This report provides a comprehensive overview of Australian taxation law, specifically focusing on the differences in tax treatments between foreign residents and Australian residents. It examines various income types, including pensions, annuities, employment income, royalties, unfranked dividends, rental income, and business income, detailing how each is taxed for both groups. The report highlights key distinctions such as the application of the Medicare levy, withholding tax rates, and capital gains tax (CGT) implications. It also explores the implications of these tax treatments for foreigners, including higher tax rates, the inability to claim Medicare liability, and specific tax obligations related to Australian property and business activities. Furthermore, the report touches upon the concept of tax residency and its impact on tax obligations, offering insights into the complexities of international taxation within the Australian context. The report concludes by summarizing the key differences and implications, providing a valuable resource for understanding the nuances of taxation law for foreigners in Australia.

Running head: TAXATION LAW
Taxation Law
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TAXATION LAW
Table of Contents
Introduction......................................................................................................................................2
Different tax treatments and implications for foreigners.................................................................2
Identification of the tax treatments which varies according to the foreigners and residents...........3
Implications of the identified treatments to foreigners....................................................................5
Conclusion.......................................................................................................................................5
References........................................................................................................................................6

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Introduction
The main discourse of the study has stated on the implication of different tax treatments
and its impact on the foreign business in Australia. The facilitation of the information pertaining
to the report has related to the issues which are identified in terms of the tax treatments which
vary according to the residents of Australia. The study has also compared the tax amounts with
the residents and foreigners for the taxation purpose. The discussions of the various types pf the
information in the report has been further conducive in stating the implication of the tax
treatments to the foreigners.
Different tax treatments and implications for foreigners
The foreign residents in Australia are needed to lodge a tax return in Australia. In
addition to this, an individual must be able to pay on the sources income from the Australian
residents which has been already considered for taxation. These sourced incomes are depicted as
per royalties, unfranked dividends and interest. The tax treaties in Australia are seen with the
treaties which are see in thee other countries which may affect the total amount of the tax which
needs to be paid as per the prescribed tax slab in a country. The financial institutions in Australia
needs to be further update the overseas address along with the residency status and correctly
deduct and taxation amount. This will be also considered with reducing the actions as per the
Australian legislation or the tax treaty maintained in a country which may have an effect on the
amount of tax which needs to be paid. The owners of the Australian financial institutions need to
be also ensure that they have updated the overseas address and status of their residency which
will be deducted to compute the correct amount of tax. This is seen to be having an impact on
reducing the follow up of the actions by Australia or foreign country in case of any discrepancy.

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Identification of the tax treatments which varies according to the foreigners and residents
Income
Type
Application of tax to the
foreigners
Application of tax to the residents
Pension and
annuities
The individuals are needed to
include the Australian pensions and
receiving the Australian tax returns
except in cases where there is an
exemption is present under the
Australian taxation law and treaty
applicable.
Taxable annuities need to be included
in the assessable income when received.
This is depicted to include the annuities
which comprise of the reversionary
beneficiary. Pensions are considered
under the series of regular payments
which are made as per super income
stream. These types of the payments are
considered with Australian super fund,
retirement savings account provider
(RSA).
Income
generated
from
employment
in Australia
The foreign individuals working in
Australia has been depicted with
engaging in the appropriate tax
system which is to be taken up in
Australia. The excerpt for the
comparison of taxable income to the
foreign residents and Australian
residents illustrates in the table
below. The foreign residents are not
The excerpt for the application of the
income tax for employment in Australia
has been stated in Table 1. The
residents of Australia are needed to
consider a Medicare levy of 2%.

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required to pay any Medicare levy.
Royalties,
unfranked
dividends
and interest
The foreign residents in Australia
are generally regarded to be
withheld from interest, unfranked
dividends and royalties which are
earned in Australia
(Ato.gov.au.2018).
The interest pertaining to Non-treaty
countries are seen with 10%. The
unfranked dividends and royalties are
seen to be bearing a rate of interest of
30%.
Franked
dividends
The receiving of these dividends are
considered to be exempted from the
Australian income and withholding
of tax.
A resident company has been elected to
pay the various types of the tax
considerations which are based on the
dividends to be fully franked and the
amount for the same be paid in credit
(Ato.gov.au.2018).
Rental
Income
This includes the investigation of the
Australian property thereby
outlining the ways in which tax is
applied to the rental income which is
received from the property in
Australia.
The residential tax and properties are
considered to be kept for future use.
These records will be conducive in
claiming for deductions and declare all
the rental income in the tax return
(Ato.gov.au. 2018).
Australian
business
income
The foreign residents conducting a
business in Australia are subject to
different types of the considerations
relating to paying tax on income and
The assessable income associated to
conduction of business in Australia are
subject to taxation. The amounts such
as running cost of the business and

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lodge a tax return. However, the
foreign taxpayers are exempted from
unfranked divided, interest and fully
franked dividends.
changes in the trading stock may not be
consideration for the assessable income.
Moreover, the assessable income also
does not include the GST allocated
(Ato.gov.au. 2018).
Income
generated
from
construction,
installments,
operation of
a casino
gambling,
sports
activities
and
upgrading of
the plant and
fixtures.
The foreign residents who are seen
to be withholding tax is withheld by
tax payer.
The various types of the incomes as
result of the construction, installments,
operation of a casino gambling, sports
activities and upgrading of plant and
fixtures (Ato.gov.au. 2018).
Australian
assets
pertaining to
capital gains
In general, the capital gains are
needed to be included for taxation
associated to the Australian property
as per the Australian tax return.
The properties held under CGT cannot
be claimed for deductions for income
tax. In addition to this, the different
types of the considerations relating to

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on CGT The same needs to be referred under
capital gains in Australia.
cost of ownership will be included
under taxation (Ato.gov.au 2018).
Taxable
Income
Application of tax
to the residents
Taxable
income
Application of tax
to the foreigners
0 – $18,200 Nil 0 – $90,000 32.5c for each $1
$18,201 –
$37,000
19c for each $1 over
$18,200
$90,001 –
$180,000
$29,250 plus 37c
for each $1 over
$90,000
$37,001 –
$87,000
$3,572 plus 32.5c for
each $1 over $37,000
$180,001
and over
$62,550 plus 45c
for each $1 over
$180,000
$87,001 –
$180,000
$19,822 plus 37c for
each $1 over $87,000
$180,001 and
over
$54,232 plus 45c for
each $1 over
$180,000
Table 1: Comparison of taxable income- Foreigners vs. Residents
(Source: Ato.gov.au.2018)

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Implications of the identified treatments to foreigners
The overall impact of the tax treatments on the foreigners has been depicted with higher
tax rate on every dollar earned as there is no tax-free threshold. The foreigners cannot claim for
Medicare liability. The interest is also seen to be taxed at a flat rate of 10% in case no overseas
addresses are provided. The foreign tax payers are also discerned to be excluded from offsetting
of tax. Moreover, the CGT is only present in the taxable Australian property (Ato.gov.au.2018).
Conclusion
It needs to be further seen that an individual or an entity may fall under the resident
taxation or foreign taxation regime at the same time. It needs to eb further seen that the test for
the tax residency does not impact on the residency status of the taxpayers in other countries.
Moreover, in terms of the double taxation it needs to be also discerned that several countries are
seen to be based on paying tax as per their country residence. It needs to be also concluded that
by stating that the various types of the information as per the non-residential rental income needs
to be considered from the Australian property which are to be included in the income tax return.

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References
Ato.gov.au. 2018. Tax-smart tips for your investment property journey [online] Available at:
https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Tax-smart%20tips%20for
%20investment%20properties.pdf [Accessed 18 Sep. 2018].
Ato.gov.au.2018. Assessable income. [online] Available at:
https://www.ato.gov.au/Business/Income-and-deductions-for-business/Assessable-income/
[Accessed 18 Sep. 2018].
Ato.gov.au. 2018. Residential rental properties. [online] Available at:
https://www.ato.gov.au/General/property/residential-rental-properties/ [Accessed 18 Sep. 2018].
Ato.gov.au.2018. Super pensions, annuities and government payments. [online] Available at:
https://www.ato.gov.au/Individuals/Income-and-deductions/Income-you-must-declare/Super-
pensions,-annuities-and-government-payments/ [Accessed 18 Sep. 2018].
Ato.gov.au.2018. Work out your tax residency. [online] Available at:
https://www.ato.gov.au/Individuals/international-tax-for-individuals/work-out-your-tax-
residency/ [Accessed 18 Sep. 2018].
Ato.gov.au.2018. Work out your tax residency. [online] Available at:
https://www.ato.gov.au/Individuals/international-tax-for-individuals/work-out-your-tax-
residency/ [Accessed 18 Sep. 2018].
Ato.gov.au. 2018. Doing business in Australia - what you need to know. [online] Available at:
https://www.ato.gov.au/Business/International-tax-for-business/In-detail/Doing-business-in-
Australia/Doing-business-in-Australia---what-you-need-to-know/ [Accessed 18 Sep. 2018].
Ato.gov.au.2018. Individual income tax rates. [online] Available at:
https://www.ato.gov.au/Rates/Individual-income-tax-rates/ [Accessed 18 Sep. 2018].

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Ato.gov.au. 2018. Interest, unfranked dividends and royalties. [online] Available at:
https://www.ato.gov.au/Individuals/International-tax-for-individuals/Investing-in-Australia/
Interest,-unfranked-dividends-and-royalties/ [Accessed 18 Sep. 2018].
Ato.gov.au. 2018. You and your shares 2013-14. [online] Available at:
https://www.ato.gov.au/Forms/You-and-your-shares-2013-14/?page=5 [Accessed 18 Sep. 2018].