Income tax and capital gains tax are two of the major direct taxes that make up corporate taxation in Australia.

Income Tax

A company is deemed to be a resident of Australia for income tax purposes if it is incorporated and conducts business in Australia, and either its central management and control are located there or its shareholders, who are Australian residents, control the majority of the voting power.

A foreign-incorporated company will be considered an Australian tax resident under the technical amendments to the current legislation that the Australian government has proposed, provided that it has a “significant economic connection to Australia,” that is, if its central management and control are located in Australia and its core commercial activities are conducted there.

Any Australian resident company must pay Australian tax on its worldwide assessable income.

Capital Gains Tax

Companies residing in Australia typically face the responsibility of paying capital gains tax (CGT) on profits generated from the sale of assets held as part of their capital account, subject to the prevailing corporate tax rate.

Companies based outside Australia that have investments on capital account are generally not subject to Australian Capital Gains Tax (CGT), unless they sell Taxable Australian Property. This includes Australian real estate or non-portfolio interests in entities.