Israel – Australia Tax Treaty

Business Activity in Australia

Australia currently has a GDP of about $1.72 trillion. It is also ranked 16 in the world for total exports, with $424 billion in exports, with its main destinations being China, Japan, South Korea, and India. 25.7% of Australia’s exports consist of coal briquettes, 20.7% of iron ore, and the rest include petroleum gas, wheat, and gold, among others.

Regarding doing business in Australia, the country brings many investment opportunities. A big positive to conducting business in Australia is its strong ties to Asian markets. Being located close to places like China, Hong Kong, and Singapore provides effective trading connections. Furthermore, Australia is considered a very highly skilled country. Companies are drawn to Australia due to their high-quality industries in research, education, agriculture, food, health, renewable energy, and technology. With the innovation of technology, companies want to conduct business in high-tech countries, as Australia has one of the largest technology sectors in the southern hemisphere valued at $167 Billion. Lastly, Australia’s diverse culture produces a very creative workforce. This combination of strategic location, skilled talent, and innovation makes Australia a prime destination for investment and business expansion.

Bilateral Agreements Between Australia and Israel

1. Double Taxation Agreement

Convention for the Prevention of Double Taxation

The agreement between the Governments of Israel and Australia regarding the avoidance of double taxation was signed in March 27, 2019, and entered into force on December 31, 2019

To read the agreement in English, click here.

Applicability of the MLI

Both Australia and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.  

Both Israel and Australia signed the MLI on the 7th of June 2017, with its provisions entering into force on the 1st of January 2019.

Residency for Tax Purposes in Australia

Residence of an Individual

Under the current rules, a person is considered an Australian resident if they meet any of the following conditions:

1. They live in Australia, including those whose permanent home (domicile) is in Australia, unless they have a permanent home outside of Australia.
2. They spend more than half the income year in Australia (at least 183 days) unless their usual home is outside Australia and they do not plan to live in Australia.
3. They are an “eligible employee” under laws about superannuation for Federal public servants.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

A company is considered an Australian resident for tax purposes if:

1. It is incorporated (legally registered) in Australia, or
2. If not incorporated in Australia, it:

Runs a business in Australia, and either:

1. Its central management and control is in Australia, or
2. The majority of its voting power is controlled by Australian resident shareholders.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Australia

The Australian tax authority is called The Australian Taxation Office (ATO)

Income Taxation: 0% – 45%

Taxation of Companies: 30%

VAT: 10%

Capital Gains Tax: 0% – 45% for individuals; 30% for companies.

Withholding Tax

Relocation to Australia

If an individual relocates to Australia and becomes a tax resident for a full year, they receive a tax-free threshold which means no tax needs to be paid on the first $18,200 of one’s income. To access more information on the tax benefit policy, click here.

Australia provides many other benefits including:

• High standard of living with life expectancy at 85.3 years and 81.2 years for females and males respectively
• High-quality medical care
• Excellent education system
• Great amount of mineral and agricultural resources
• One of the strongest economies in the world
• The Australian Securities Exchange is in the world’s top 10 exchange groups based on market cap

In September 2023, approximately 117,200 Jewish people were living in Australia. With many Jewish schools in Australia, the country has the highest rate of Jewish children in Jewish schools outside of Israel. Every state in Australia has some sort of Jewish connection where its cultural needs are met.

Real Estate Taxation in Australia

General land tax rates differ within each territory of Australia. As each territory slightly differs in tax rates, there of course are many rules that apply to all states in Australia. Whoever the owner of the property is at midnight on June 30, they are responsible for paying the land tax for the forthcoming financial year. If the property is sold after June 30, the seller is liable for the land tax. Depending on the use of the property, there may be exemptions that can be found here.

To determine the value of a property, a Value-General conducts a general valuation which applies starting July 1 and ends on June 30. A valuation is completed annually for each financial year. The value is determined by sales and related market evidence as well as other related matters that may affect the value of the property. The value of land excludes structural improvements except for draining, filling, retaining walls, excavating, leveling of land, removal of rocks, and clearing of vegetation. For more detailed information, click here.

To show an example, in Victoria, there is a land tax bracket which is shown below in the table.

Additional territories in Australia differ as the range of the general land tax rates is 0% to 2.75%. here are a number of indirect taxes on the transfer of property imposed by states and territories in Australia.

Stamp Duty

Transfer duty is a transaction-based tax, generally imposed on the transfer of dutiable property. It can be imposed at rates of up to 7 percent on the higher of the unencumbered market value of the dutiable property (including GST) and the consideration paid for the dutiable property. Examples of dutiable property include real estate, interests in land and business assets. Transfer duty is generally imposed on the purchaser of the dutiable property.

Landholder Duty

Another form of stamp duty is landholder duty (or land-rich duty in some jurisdictions). Landholder duty will apply to the purchaser in an acquisition of 50 percent or more of a private company or trust that is a “landholder” (or “land-rich”). A higher threshold may apply to public landholders.

Transfer of Funds from Israel to Australia

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax. 

n addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more. 

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us. 

For more information on money transfers abroad, click here. 

Types of Business Entities in Australia

Sole Trader

A sole trader is the easiest business structure to set up in Australia. Sole traders are responsible for all assets and liabilities of the business. The biggest advantage is the fact that the sole trader can keep all the profits to himself and have full control of the business. On the other hand, there is unlimited liability which puts all of one’s assets at risk.

Partnerships

A partnership consists of two or more people who divide up the income and losses between the partners. Income tax is not paid based on the income of the company but on each partner’s share of the company and the income they each earn. There are three different types of partnerships: General partnership, limited partnership, and incorporated limited partnership. The difference between the three types is basically what determines the amount of liability each partner has in the company. To read more click here.

Company

A company is a separate legal entity. It has the same rights as a person. Individuals are not liable for a company’s debts, only to pay for unpaid amounts on shares if they are called upon to do so. A company can be very costly and complicated to set up but can have very high returns.

Trust

A legal arrangement where a trustee holds assets on behalf of beneficiaries. Commonly used for asset protection and tax planning.

Joint Venture

A business arrangement between two or more parties to undertake a specific project or business activity. Each party maintains its own legal status and shares risks, costs, and profits.

Incentive Laws in Australia

To encourage business in Australia, small businesses are eligible to receive a 20% deduction on expenditure to improve energy efficiency. Its goal is to help companies save on energy bills. Businesses with less than $50 million in annual turnover are entitled to the 20% bonus. Other incentives include a 20% deduction on technology expenditure, training expenditure, deductions on depreciating assets, discounts on home-based business expenses, and more.

Research and development tax incentives encourage business in Australia as it contributes $3 billion to eligible companies. The tax deduction is the corporate tax rate plus a premium rate up to 18.5%. To encourage international investment, some additional incentives include tax treaties that reduce withholding tax, depreciation rules (click here), and lower corporate tax rates for small and medium-sized companies.

Australia overall is a great place to live with high-quality and affordable health care, one of the world’s best education systems, and a low cost of living. Australia has 4 of the top 15 most livable cities in the world for 2023.

Some other incentives to becoming a resident in Australia include:

• Health insurance premiums which include tax offsets. Offsets up to 32.812 percent can be earned.
• Child care subsidy
• Innovation investment offset
• Small business income tax offset

Australia Double Tax Treaties