Thinking of moving your business to Australia? We discuss some of those key challenges faced by NZ businesses thinking about operating in Australia, including legal, employment and tax considerations.
Expanding your business from New Zealand to Australia
For New Zealand based companies moving your business operations, going ‘over the ditch’ to Australia is a logical first step in overseas expansion. With a similar business culture and comparable legal environment, Australia gives access to a significantly larger customer base, with significantly lower risk than expanding to other parts of Asia. However, careful planning and structuring is needed to ensure there are no unintended and costly consequences.
Legal business structure
A New Zealand business can establish a presence in Australia in a number of different ways. The choice of legal structure will depend on your future plans. Do you intend to expand and develop a permanent presence in Australia or are you merely seeking to export to Australia? If you’re dealing with certain organisations, such as government, they often require an Australian company or branch. Having a separate legal structure also makes it easier when setting up bank accounts or obtaining a local credit card.
Export presence only
If moving your business simply involves exporting goods or services to Australia. No legal presence is established. Income tax on profits will be payable in New Zealand only. Local Australian transaction taxes such as GST, import duties and stamp duties will be payable in Australia.
While this is the easiest and cheapest structure to set up and suitable for smaller or one-off transactions, the downside is that it is harder to employ staff and develop a more permanent base in Australia.
Australian branch of a NZ company
Moving your business may be just setting up a branch. A “branch” of a business is not a separate legal entity, although it must comply with Australian laws. Setting up a branch requires significant corporate documentation to be lodged with the corporate regulator, Australian Securities and Investments Commission (ASIC) and lodgement of an annual P&L and balance sheet.
Taxation of profits will depend on whether the branch is considered a “Permanent Establishment” for Australian tax purposes. In most instances this will be the case and therefore profits will be taxable in Australia. Additionally, it is possible that double taxation of profits will arise (see below).
Regulated entities, such as banks and insurance companies, can establish branches in Australia, subject to approval by APRA and ASIC.
Australian subsidiary of an NZ company
A subsidiary is a separate legal entity incorporated in Australia. Typically, the shares in the subsidiary will be held by the New Zealand “head” company. There is also a requirement under the Corporations Act for there to be a resident Australian director. Read more on our guide for setting up an Australian subsidiary.
While similar in many regards, there are some significant differences in the taxation of businesses between Australia and New Zealand that need to be understood.
At a high level, Australia has similar tax arrangements to New Zealand, with separate tax rates for employees and companies. Employees are taxed on a sliding scale, depending on the level of income, whereas companies are taxed at a flat 27.5% on all taxable profits, where turnover is less than A$50 million and 30% above (for the 2018-2019 tax year).
Profits will be taxable in Australia unless the central management & control of the company is overseas – owing to the double tax treaty between NZ & Australia. A recent ruling by the ATO concerning corporate residency (TR 2018/5) states that if the Central Management and Control (CMAC) of the company is in Australia then the company will be tax resident in Australia.
Taxes paid in Australia do not generate imputation credits for New Zealand shareholders.
So, if a branch or subsidiary is a Permanent Establishment in Australia it will pay tax on profits derived in Australia. If profits are then repatriated to New Zealand as dividends, the dividends will also be subject to taxation in New Zealand.
There are several mechanisms to mitigate this risk however careful planning and structuring is required.
Tax File Number
If you need to lodge an Australian tax return, then you will also have to have an Australian Tax File Number (TFN). The TFN is separate to your ABN. While the ABN must be noted on all your invoices in order to claim GST, you are not required to disclose your TFN.
GST in more depth
When moving your business, the differences in GST between countries are worth examining. Whilst the NZ GST tax is a consumption tax of 15% of all goods, services and other items sold or consumed in NZ, the Australian system is a broad-based tax of 10%, with certain specified exclusions. These exclusions include certain foods, education and some government services.The annual turnover threshold over which are you required to be registered for GST is NZ$60,000 in New Zealand and A$75,000 in Australia.
Each of the mentioned legal business structures would need to consider the differences between these rates and thresholds, and if this should impact on pricing decisions before trading. Certain goods and services are not liable for GST, and again these differ across the ditch so reach out to your advisor for specifics.
Fringe Benefit Tax
Similar to New Zealand, fringe benefit tax (FBT) is a tax paid on benefits given to employees in place of salary and wages. For example, free holidays for staff, paying non-business related expenses (e.g. school fees) or cars for private use may all be subject to FBT. The benefit is taxed at the top marginal rate (currently 47% including Medicare levy) and is paid by the company, not the employer. The rules are complex and usually require expert advice and assistance to navigate. FBT filings are made at the end of March.
Australian Business Number
No matter what your legal structure, unless you are merely exporting to Australia, you will require an Australian Business Number (ABN) in order to pay staff or claim Goods and Services Tax (GST) credits. These require you to be carrying on a business in Australia or making sales that are connected with Australia.
Capital Gains Tax
Unlike New Zealand, Australia taxes capital gains made on disposal of any asset, with certain exemptions. The calculation of which costs to include and the profit on sale (which may be different to the accounting gain or loss), is complex.
When moving your business be aware of payroll tax. While income taxes are only charged by the Federal Government, certain state based levies and taxes still apply. Most states levy taxes on payroll of employees within their state. Thresholds and rates vary from state to state, but typically start around A$750,000 and around ~5%.
Accounting and Taxation Year
In Australia, the tax year typically runs from 1 July to 30 June of the following year, putting it out of sync with New Zealand’s tax year. If you want to align your Australian and New Zealand tax years, you can apply to the ATO by applying for a substituted accounting period (SAP).
For a company, your accounting year can be any 12 month period and up to 18 months in your first year of operation. There is no need to apply to the regulator to change your accounting date.
Permanent employees hired in Australia are subject to Australian labour laws and requirements – award rates of pay, superannuation, workers compensation insurance, payroll tax etc. These can vary from state to state, so specialist advice should be sought. Options that may be considered when starting up include use of contractors or services companies, which give more flexibility as your grow your business. There is reciprocal health care arrangements between Australia and New Zealand.
If a New Zealand citizen relocates to Australia, for example a manager to oversee the business, an appropriate business visa will be required.Various Australian government visas are available which may be helpful – for example the Business Innovation and Investment Visa, the Permanent Business Talent Visa or Entrepreneurs Visas.
When moving your business to Australia take note of the employee benefits. Full time employees are entitled to a minimum of 20 days annual leave per year and 10 days personal (sick) leave. Annual leave is cumulative, such that any leave not taken during the year accumulates in the next year. Any unused annual leave is paid out to the employee upon leaving the company, whether by resignation or otherwise. Personal leave, which includes sick, carer’s and compassionate leave, accumulates over time but typically does not vest upon the employee leaving.
Long Service Leave (LSL) entitles employees a period of leave after a long period with the same employer. While the exact specifics vary from state to state, typically this could be around 10 to 12 weeks after about 10 years service. In certain industries, LSL is portable between employers and sometimes vests when an employee is made redundant.
Australian businesses are required to make pension payments (called superannuation) on behalf of their employees to a nominated superannuation fund. The current rate of superannuation is 9.5%, rising to 12.5% by 2025. The amount paid is based on an employees salary and wage and thus salary is often negotiated inclusive of super. However, it pays to be clear with potential employees whether an offer made is inclusive or exclusive of superannuation. For example, if you agree to hire an employee on $100,000 exclusive of super, you will also be liable to pay and additional $9,500 to their superannuation fund on their behalf.
When moving your business be aware that Australia has a myriad of both state based and national laws covering consumer protection. Any goods and services sold in Australia will be subject to Australian consumer laws. The Australian Consumer and Competition Commission (ACCC) is the primary regulator for selling goods to consumers and covers a wide variety of areas, including advertising and fair trading.
Appropriate licensing may also be required to operate certain types of businesses in Australia. For example, an Australian Financial Services License (AFSL) is required for advising or dealing in financial products to consumers or Australian Credit License (ACL) is required for consumer lending (but not business lending).
If you’re importing food stuffs, different labelling requirements could be required and certain products, primarily drugs, are licensed by the Therapeutic Goods Administration (TPA). Other goods, such as toys aimed at children, may be required to meet national safety standards. Receiving correct advice is important if you’re uncertain.
Businesses also need to be conscious of foreign exchange fluctuations between the AUD and NZD. A strong NZD against the AUD can severely impact the profitability of any overseas operations. Depending on the size of operations, businesses may want to consider hedging their sales and expenses. Alternatively, try as far as possible to match income and expenses in AUD. For example, if you supply widgets and you win a large Australian contract, try and purchase your supplies in AUD as far as possible. With your income and expenses matched, you are less at risk of foreign exchange movements.
Having an Australian based address and phone number will add weight to your operations. If you don’t want to invest in a longer term business lease, there are multiple options available in the major capital cities. Everything from a postal address and phone number, through to serviced offices and warehouse space. Costs range from a few hundred dollars a month up. In Sydney, some common providers include Servcorp, WeWork and Regus.
For a NZ business in Australia, the launch can open a new market and customer base, and thereby offer opportunities for growth. The choice of an appropriate legal and business structure is critical however and needs to be carefully evaluated. If you need assistance with establishing an Australian business reach out to the seasoned team at Fullstack whom can help with Australian accounting services.