Australia's Future Tax System

Architecture of Australia's tax and transfer system

2.11 Additional tax and transfer tables (continued)

Table 2.15: Tax treatment of typical resident holding entities for a resident individual investor

Treatment of entity's: Direct/partnership Non‑fixed trust Fixed trust Company Complying superannuation fund
Taxable income

Individual taxed at personal rate

Individual taxed at personal rate(1)

Individual taxed at personal rate(1)

Company taxed at 30%

When distributed, individual taxed at personal rate with franking credit

Fund taxed at 15%

Payment of benefits, tax‑free if member is aged over 60 years(2)

Other income          
tax‑preferred income

Tax preference partially clawed back on realisation of gain, generally when asset is disposed of

Tax preference partially clawed back on realisation of gain, generally when asset is disposed of

Tax preference partially clawed back on realisation of gain, generally when asset is disposed of(3)

Company benefits from tax preference

When distributed, individual taxed with no franking credit

Fund benefits from tax preference

Payment of benefits tax‑free if member is aged over 60 years(2)

capital gains

Individual can benefit from 50% discount

Small business CGT concessions may apply

Individual can benefit from 50% discount(4)

Small business CGT concessions may apply

Individual can benefit from 50% discount(4)

Small business CGT concessions may apply but may be clawed back through CGT(5)

No 50% discount(6)

Small business CGT concessions may apply but when distributed, individual may be taxed(5)

Fund can benefit from 33⅓% discount

foreign source income

Individual taxed (with credit for direct foreign taxes paid)

Individual taxed (with credit for direct foreign taxes paid)

Individual taxed (with credit for direct foreign taxes paid)

Company exempt or taxed with credit for foreign tax

When distributed, individual taxed on amount net of foreign tax

Fund taxed with credit for direct foreign taxes paid

Losses
(other than capital losses)

Individual can use to offset other income subject to non‑commercial loss rules

Quarantined in trust and subject to carry‑forward rules

Quarantined in trust and subject to carry‑forward rules

Quarantined in company and subject to carry‑forward rules

Quarantined in fund

Disposal of interest in entity

Individual taxed on disposal of partnership interest

50% discount and small business CGT concessions may apply

Not applicable

Individual taxed on sale of interest

50% discount and small business CGT concessions may apply

Individual taxed on sale of interest

50% discount and small business CGT concessions may apply

Not applicable

Notes:

  1. The trustee is taxed if no beneficiary is presently entitled to some income of the trust or a beneficiary under a legal disability is presently entitled to income of the trust.
  2. Special rules apply if member is aged less than 60 years.
  3. Where a beneficiary receives a payment of non‑assessable income from the trust it reduces the cost base of the interest in the trust held by the beneficiary. Once the cost base reaches zero any further non‑assessable amount leads to a taxable capital gain.
  4. If trustee is taxed because no beneficiary is presently entitled to some trust income, trustee is not eligible for CGT discount.
  5. Some small business CGT concessions are subject to clawback. For those subject to claw back, it operates for trusts as described in note (3) and for companies as a consequence of unfranked dividends being taxed.
  6. If capital gain arises from disposal of a non‑portfolio interest held in a foreign company with more than 90 per cent active assets, it is not taxable to the company. For life insurance companies, 33⅓ per cent discount applies to complying superannuation/first home saver account business. For listed investments companies, to the extent that distributions represent capital gains, shareholders effectively get the benefit of the CGT discount.

Table 2.16: Tax treatment of typical resident holding entities for a non‑resident individual investor

Treatment of entity's: Direct/partnership Non‑fixed trust Fixed trust Company
Australian source taxable income    
business income (active) Individual taxed at personal rate(1) Individual taxed at personal rate(2) Individual taxed at personal rate(2) Company taxed at 30%
When distributed, no dividend withholding tax
investment income (passive) Investment income may be subject to withholding tax (otherwise individual taxed at personal rate) Investment income may be subject to withholding tax (otherwise individual taxed at personal rate) Investment income may be subject to withholding tax (otherwise individual taxed at personal rate) Company taxed at 30%
When distributed, no dividend withholding tax
Other income    
tax‑preferred income Individual benefits from tax preference Individual benefits from tax preference Individual benefits from tax preference(3) When distributed, subject to dividend withholding tax at 30% (typically, a lower rate applies under a tax treaty)
capital gains Exempt unless taxable Australian property(4). If taxable, individual can benefit from 50% discount Exempt unless taxable Australian property(4). If taxable, individual can benefit from 50% discount(5) Exempt unless taxable Australian property(4). If taxable, individual can benefit from 50% discount(5) Company taxed at 30%(6)
When distributed, no dividend withholding tax
foreign source income Exempt Exempt Exempt Company exempt or taxed with credit for foreign tax
When distributed, no dividend withholding tax (conduit foreign income)
Losses
(other than
capital losses)
Individual can use to offset other income subject to non‑commercial loss rules Quarantined in trust and subject to carry‑forward rules Quarantined in trust and subject to carry‑forward rules Quarantined in company and subject to carry‑forward rules
Disposal of
interest in entity
Exempt unless taxable Australian property(4) Not applicable Exempt unless taxable Australian property(4) Exempt unless taxable Australian property(4)

Notes:

  1. Where a tax treaty applies, business income is only taxable to the extent it constitutes business profits attributable to an Australian permanent establishment.
  2. The trustee is taxed if no beneficiary is presently entitled. Trustee may also be liable to tax on behalf of a presently entitled non‑resident beneficiary.
  3. If the interest in the trust is taxable Australian property (see note (4)), a payment of non‑assessable income (tax‑preferred income) from the trust reduces the cost base of the interest in the trust held by the beneficiary. Once the cost base reaches zero, any further non‑assessable amount leads to a taxable capital gain.
  4. Taxable Australian property is, broadly, an interest in Australian land, a non‑portfolio interest in an Australian-land‑rich entity or a business asset of an Australian permanent establishment.
  5. If trustee is taxed because no beneficiary is presently entitled to some trust income, trustee is not eligible for CGT discount.
  6. If capital gain arose from disposal of a non‑portfolio interest held by the company in a foreign business with more than 90 per cent active assets, it is not taxable to the company.

Table 2.17: Sources of state tax revenue, 2006‑07 ($million)(a)

  NSW VIC QLD WA SA TAS ACT NT Total
Payroll tax 5,664 3,479 2,232 1,607 845 218 225 128 14,398
Conveyance duty 4,166 2,961 2,542 2,158 721 157 242 107 13,054
Motor vehicle taxes 1,980 1,280 1,176 825 395 123 96 40 5,915
Gambling taxes 1,653 1,508 825 164 422 86 48 65 4,772
Land tax 2,036 989 485 386 332 62 67 4,358
Insurance taxes 1,443 1,095 421 335 301 51 43 23 3,714
Other taxes 771 390 803 243 234 51 208 5 2,700
Total state tax revenue 17,713 11,702 8,484 5,718 3,250 748 929 368 48,911
Local government taxes 2,768 2,502 2,003 1,001 833 218 63 9,388
  1. As there are no local governments in the ACT, rates are levied by the territory government. Other taxes for the ACT include $159 million in rates.

Source: ABS Taxation Revenue, cat. no. 5506.0, 2006‑07.