Israel – Australia Tax Treaty

Business Activity in Australia

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

With regards to 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 provide 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.

Bilateral Agreements between Australia and Israel

1. Double taxation agreement
2. Technological innovation cooperation 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 on 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 Israel have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Israel and Australia signed the agreement on June 7, 2017 and entered in force in January 1^st, 2019.

Residency for Tax Purposes in Australia

Residence of an Individual

An Individual is considered a tax resident in Australia if any of the following applies:

• If they have lived in Australia for their entire life
• If they have been in Australia for at least 6 consecutive months while working the same job and living in the same place
• If they go overseas and do not set up a home in a different country
• If they are a student studying in Australia for at least a 6-month period.

An individual can also be considered a part-year Australian resident where the tax-free threshold will be less than if you were a full a full-time resident. Additionally, a dual resident is someone who pays domestic income tax in Australia and another country for the purpose of their tax laws.

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

Residency of a Company

A company will be considered a resident in Australia if either the business was incorporated in Australia or its central management or control is run in the country.

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

In September 2023, there were approximately 117,200 Jewish people 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.

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

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 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 Valuer-General conducts a general valuation which applies starting July 1 and ends on June 30. A valuation is competed annually for each financial year. The value is determined by sales and related market evidence as well as other related matters than may affect the value of the property. The value of land excludes structural improvements except for draining, filling, retaining walls, excavating, levelling 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%. There are also stamp duty rates where the largest rate in Australia would be 6.5% in Victoria.

Transfer of Funds from Israel to Australia

According to section 170(a) of the Israeli Income Tax Ordinance, any transfer of payment to a non-Israeli resident is subject to a 25% withholding tax. The tax authority may allow, under certain circumstances, a reduction or dismissal of the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Since both countries have a tax treaty, one can submit a declaration form (statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, it is possible to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our firm handles the requirements of foreign banks, such as an accountant’s approval regarding the payment of taxes, and examines additional actions required in light of the uniform standard of CRS between the countries –automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

Banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – 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 personal 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 you are called upon to do so. A company can be very costly and complicated to set up but can have very high returns.

Incentive Laws in Australia

To encourage business in Australia, small business are eligible to receive a 20% deduction on expenditure to improve energy efficiency. Its goal is to help company’s 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 which reduce withholding tax, depreciation rules (click here), lower corporate tax rates 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 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