special report · Australia’s legal structure 1 2 Establishing a business presence 2 An overview 2 companies 2 Partnerships 4 Joint ventures 4 trusts 4 3 australia’s business

special report

october 2005

A guide for internAtionAl business

establishing a business in Australia

s P e c i A l r e P o r t E s t a b l i s h i n g a b u s i n E s s i n a u s t r a l i a

Minter ellisonMinter Ellison is an international law firm with a strong

Asia Pacific focus. Established in 1827, we have built a legal

group that is ranked the largest in the Asia Pacific and the

13th largest in the world.

We understand the dynamics of conducting global

business. Through an integrated network of offices in

Asia, Australia, New Zealand, the UK and the US, our

1,300 specialist lawyers support both local business and

international companies with a range of services.

Our strengths are cross-border seamless service,

technical excellence and commercial, practical, results-

oriented advice.

Recent highlights and achievements include:

• ranked 2nd (by revenue) in Business Review Weekly’s

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Project Finance, M&A, Insolvency

& Reconstruction, Labour & Employment, Litigation

and Technology, Media & Telecoms by Euromoney

Legal Media Group’s Expert Guides

• ranked among the Asia Pacific region’s

top 5 law firms handling M&A transactions throughout

the region

• described by the respected Global Counsel 3000 as the

Asia Pacific’s ‘regional champion’ in its latest survey of

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which describes our lawyers as providing ‘first rate

service’, being ‘extremely customer focused’ and simply

as ‘first class’.

For more information about Minter Ellison please visit

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© Minter Ellison October 2005

contents1 introduction 1

Australia’s legal structure 1

2 Establishing a business presence 2

An overview 2

companies 2

Partnerships 4

Joint ventures 4

trusts 4

3 australia’s business rules 5

foreign investment policy and rules 5

exchange controls and cash transaction reporting 5

Acquisitions of companies and businesses 6

taxation 7

company tax thresholds 8

competition and consumer protection law 15

intellectual property 16

employment and industrial relations 18

P A g e 1

Foreign investment is welcome in Australia, with all levels

of government keen to promote business, economic

development and employment growth.

Australia’s prosperous Western-style capitalist economy

ranks among the world’s 20 largest, with a per capita GDP

on par with the four dominant West European economies.

The telecommunications and IT market in Australia is

one of the biggest in Asia and tenth largest in the world.

Australia’s economic growth has been more than three per

cent per annum for the last 10 years, one of the highest in

the OECD.

This strong economy is due, in part to:

• rising outputs in the domestic economy

• high business and consumer confidence

• a strong emphasis on reform.

Australia is no longer as reliant on its resource and

agriculture sectors. The services sector now accounts for

more than 70% of GDP.

Business in Australia is conducted in a transparent, well

regulated and politically stable environment. The judiciary

is open, independent and accessible. The climate is superb

and living standards are very high.

The cost of setting up a business in Australia is about

eight or nine per cent cheaper than the USA. Australia

ranks only second behind Canada for business cost

competitiveness. The latest World Bank Doing Business

report judged Australia to be the most straightforward and

affordable country to start up a business.

The Australian labour force is highly educated with a

strong multicultural background. Approximately 42 per

cent of Australia’s working age population has a university

degree, diploma or trade qualification. More than 850,000

people in Australia are fluent in a major Asian language

and 1.3 million are fluent in a major European language

other than English.

The Federal Government’s trade policy combines

multilateral, regional and bilateral approaches. Australia

pursues every opportunity to open up global markets

for exporters and to encourage investment flows across

all sectors. As part of this commitment, the Federal

Government has negotiated special access for Australian

suppliers of goods and services to key export markets

through Free Trade Agreements (FTAs). The results of this

policy have become particularly apparent in recent years

with Australia making significant advances in its pursuit to

enhance trade by completing FTAs with the USA, Thailand

and Singapore and other significant agreements with

China, Malaysia and Japan.

This booklet presents the law at October 2005, and is

intended:

• as an introductory guide to doing business in

Australia. Factors which may be relevant to particular

circumstances (including industry specific regulation)

are not covered.

• to answer preliminary questions frequently asked by

those unfamiliar with the Australian market.

For more comprehensive and proper professional advice

please contact any of the Minter Ellison Legal Group

offices, details of which are at the back of this guide.

Australia’s legal structureAustralia’s legal system is unique. Based significantly on the

British Parliamentary model, it also adopts features of the

United States’ system. Australia is a common law country,

whose law is developed and shaped not just by legislation

but also through the decisions of an independent judiciary.

Australia’s highest court is the High Court of Australia

which sits in Canberra.

Australia’s federal system of government is similar in

many respects to the USA and Canada.

Laws which are relevant to doing business in Australia

are made by all three tiers of government: federal, state

(and territory) and local.

The Federal Parliament’s power to make laws is defined

by the Constitution. Under the Constitution, the Federal

Parliament may legislate in the areas of taxation, foreign

investment, defence, the banking and monetary system,

telecommunications, interstate and overseas trade, trade

mark and patent registration and foreign affairs.

The states have more general roles in areas like

education, health, policing, roads and traffic. However,

in the event of conflict with federal laws, the Federal

Constitution provides that the federal law prevails.

Local governments are creatures of state governments

and will be relevant to business operations when they are

affected by local land use, development and planning laws.

1 introduction

s P e c i A l r e P o r t E s t a b l i s h i n g a b u s i n E s s i n a u s t r a l i a

An overviewtrading with australiaIt is possible to do business in Australia without setting

up formal structures, although having some form of

legal identity or other formal arrangement will often be

advisable. The following issues must be considered:

• Tariffs apply to some goods imported into Australia.

For example, clothing, footwear and passenger cars

and components. However, as the Federal Government

seeks to establish enhanced trading relationships with

many countries, tariffs and other duties are under

constant review.

• Agency and distribution arrangements are not

specifically regulated, although franchising is subject to

separate regulation. The terms of any contract between

agent and principal should address all aspects of the

relationship.

• Other legal issues which may arise include:

– protection of intellectual property rights

(see page 17 of this guide)

– the law of the contract, the relevant forum for

enforcing the contract and the possible impact of

the United Nations Convention on Contracts for the

International Sale of Goods

– security for payment, including title retention

– dispute resolution and the relevant forum for

settling disputes

– currency of payment and protection against

exchange rate fluctuations

– potential product liability claims

– taxation, although Australia has an extensive system

of agreements to avoid double taxation with its

main trading partners

(see pages 7 to 15 of this guide).

trading in australiaForeign companies establishing a business presence in

Australia usually:

• establish or acquire an Australian subsidiary company

• establish a branch office.

Although one of the benefits of trading as a company in

Australia is the low rate of tax on profits, the decision of

whether to establish a subsidiary or branch should turn on

commercial, and not only legal or taxation, considerations.

The table on page 3 sets out the main legal differences

between establishing a company in Australia and a foreign

entity doing business through a branch office established in

Australia.

Business in Australia may be conducted through any of

the following structures:

• company

• partnership

• joint venture

• trust

• sole trader.

companiesregulationCompany law in Australia is regulated by a national

scheme. The Corporations Act and the Australian Securities

and Investments Commission Act govern companies, securities

and futures law in Australia. This legislation was enacted by

the Federal Parliament following a referral of power from

each of the Australian states.

The activities of companies listed on the Australian

Stock Exchange Limited (ASX) are also regulated by the

ASX’s Listing Rules.

types of companiesFor people wanting to carry on a business or activity in

Australia there are four different types of companies from

which to choose:

• a company limited by shares (both public and

proprietary)

• a company limited by guarantee

• an unlimited company (both public and proprietary)

• a no liability company (which is only available where

the entity’s business is limited to mining).

The type of company used will depend on the nature of the

business or activity.

There are more than one million companies registered

in Australia, 98 per cent of which are either public or

proprietary companies limited by shares. Members of a

company limited by shares contribute capital by subscribing

and paying for shares in that company. The liability of such

members is limited to any amount unpaid on those shares.

P A g e 2

2 establishing a business presence

P A g e �

Corporate law issues– separate legal entity

– registered with the Australian securities and investments

commission (Asic) and given a unique identifying

number, an Australian company number (Acn)

– liabilities remain with the subsidiary in the absence

of guarantees and like arrangements or unless the

subsidiary trades while insolvent

– may be public or private (restrictions on number

of shareholders and issuing shares)

Foreign investment review board– approval may be required before subsidiary is acquired

or established

– approval may be required before assets or land

are acquired

taxation– will be resident for Australian tax purposes

– will be taxed on all income, wherever sourced

– taxed on all income at the rate of �0%

– if a trading company, must obtain an Australian

business number (Abn)

– may be subject to gst/VAt of 10% on taxable supplies

Debt/equity and thin capitalisation– thin capitalisation rules restrict interest deductibility:

generally, debt funding cannot exceed 75% of the

value of Australian assets (less certain liabilities); there

is also an ‘arm’s length’ test

Ongoing administrative responsibilities– annual statements are issued by Asic. Any changes to a

company's details must be lodged within 28 days.

– no need to lodge financial reports if relieved from

doing so under Corporations Act

Exchange controls– significant cash transactions and transfers must

be reported

a subsidiary company

– not a separate legal entity

– foreign company is registered with Asic and given

a unique identifying number, an Australian registered

business number (Arbn)

– liabilities are those of foreign company

– approval may be required before assets or land

are acquired

– taxed as if it were a separate entity, in Australia

– taxed on all Australian sourced income at the rate of �0%

– may be affected by double taxation agreement

– must obtain an Abn

– may be subject to gst/VAt of 10% on taxable supplies

made by or through branch office

– generally as for a company

– foreign company must lodge financial reports,

unless relieved from doing so under Corporations Act

generally, or on application

– restrictions and reporting requirements apply

to dealings between branch and head office

a branch office

Establishing a business presence – the legal differences between:

A proprietary company, which may be further classified

as small or large, is a private company designed for a

relatively small group of persons (maximum of 50 non-

employee members). It cannot invite the public to subscribe

for its shares or to lend money to it. A company can also

place restrictions on the transfer of its shares.

A public company may have a much larger membership

and is not subject to these restrictions.

A small proprietary company (determined by the size of

gross revenue, gross assets and the number of employees)

has less onerous ongoing administrative obligations and is

usually suitable for a foreign company wanting a separate

presence in Australia.

s P e c i A l r e P o r t E s t a b l i s h i n g a b u s i n E s s i n a u s t r a l i a

P A g e 4

registrationTo register a company, an application is made to the

Australian Securities and Investment Commission (ASIC).

Each company is allocated an Australian company

number (ACN), a unique identifying number on

registration.

Trading companies require an Australian Business

Number (ABN) for taxation purposes. It is proposed that

this number will eventually replace the ACN for most

companies, giving all companies one identifying number.

Registration entitles the company to carry on business

anywhere in Australia. Each company must:

• register its name

• have a registered office

• appoint the directors and other officers prescribed for

its type

• lodge statements and financial reports as prescribed for

its type and circumstances.

Provided that all necessary information is available,

companies can be registered and trading within one

business day.

PartnershipsIn Australia, a partnership is the relationship which exists

between persons carrying on a business in common, with a

view to profit.

In addition to any agreement between the partners,

partnerships are regulated by the Partnership Acts of each

state and territory of Australia.

Because a partnership is not a separate legal entity:

• each partner is the agent of the other partners and may

make contracts, undertake obligations and dispose of

partnership property on behalf of the partnership in

the ordinary course of the partnership business

• arrangements between partners will protect partners in

their relationship with each other

• third parties without knowledge to the contrary,

however, are protected from actions committed by

partners beyond their authority

• each partner is personally liable, jointly and severally,

for the liabilities of the partnership. The liability of

each partner is unlimited except in the case of limited

partnerships

• the property of the partnership is owned by the

partners personally

• the partners cannot contract with the partnership

• each partner is liable personally, jointly and severally,

for torts committed by the partners in the ordinary

course of the partnership business.

The partnership must submit an annual tax return

disclosing its income, outgoings and the distribution of

profits to partners, although it is the partners individually

who must pay tax on their share of partnership profits and

not the partnership as a whole.

If the partnership carries on business, other than under

the names of the partners, the business name must be

registered in each relevant state and territory.

A form of limited partnership may be formed in

Victoria, Queensland, New South Wales, Western

Australia, South Australia and Tasmania, but not in the

Australian Capital Territory or the Northern Territory.

A limited partnership must have at least one limited

partner (a partner whose liability is limited) and one

general partner (a partner whose liability is unlimited).

A limited partnership is taxed as a company.

Joint venturesA joint venture is established by parties wishing to share

the product of an enterprise as opposed to sharing

the profits. Joint ventures are common in the mining

and exploration industry for this reason. They may be

incorporated, where the parties to the project take a share

in a company which has been specifically incorporated for a

project, or unincorporated. Joint ventures are governed by

the terms of the agreement between the joint venturers and

by the common law. They are not separate legal structures.

trustsIn a trust structure, the assets of the business are held

by a trustee, which carries on the business on behalf of

the beneficiaries. Trusts fall into three types: unit, fixed

and discretionary. Trusts may be private or public. A

public trust can be listed. The usual structure provides for

beneficiaries to hold units to which entitlements attach

and which may be transferred in a similar way to shares in

a company.

It is the beneficiary rather than the trustee that is taxed

in this kind of structure. Generally a beneficiary to a trust

would have to include their share of the trust’s net income

in its personal tax return.

P A g e 5

foreign investment policy and rulesThe Australian Government’s foreign investment policy,

generally speaking, encourages foreign investment in

Australia. The policy and the Foreign Acquisitions and

Takeovers Act (FATA) (which provides the legislative support

for the policy) are administered by the Foreign Investment

Review Board (FIRB), a division of the Australian Treasury.

As Australia seeks to enhance trade with many

countries, free trade and other bilateral agreements will

be reached with the intention of promoting two-way

investment and setting the parameters for trade between

Australia and its trading partners. For example, the recent

Australia-United States Free Trade Agreement and US Free

Trade Agreement Implementation Act increase the notification

threshold for acquisitions of substantial interests in

Australian businesses by US investors from A$50 million to

A$800 million.

Certain types of proposals by foreign interests to invest

in Australia require prior approval (depending on the value

of the assets or business being acquired) and therefore need

to be notified to FIRB.

Proposals likely to require prior notification to FIRB

and approval by the Treasurer include:

• acquisitions of substantial interests in existing

Australian corporations or businesses with total assets

over A$50 million (or A$800 million for US investors)

• proposals to establish new businesses involving a total

investment of A$10 million or more (or A$800 million

for US investors)

• takeovers of off-shore companies whose Australian

subsidiaries or assets are valued at A$50 million (or

A$800 million for US investors) or more, or account

for more than 50% of the target company’s global assets

• investments in ‘sensitive’ sectors

• acquisitions of interests in urban land irrespective of

value (although approval is not generally required in the

case of developed non-residential commercial real estate

valued at less than A$50 million, or A$800 million for

US investors).

Briefly, a foreign person acquires a substantial interest in

the ownership of a corporation or business if that person

(and any associates) acquires 15% or more of the ownership

of the entity, or that person together with other foreign

persons and each of their associates acquire 40% or more

in aggregate of the ownership.

In most industry sectors, foreign investment proposals

which require approval are approved unless determined

to be contrary to the national interest. However, specific

policies and rules apply in the case of proposals involving

foreign investment in urban land (particularly developed

residential real estate), or in the banking, civil aviation,

airports, shipping, media and telecommunications industry

sectors.

FIRB approval is usually given within 30 days of lodging

an application.

The Federal Treasurer has the power to block an

investment or to require divestment if the FATA is breached

or the investment is considered to be contrary to the

national interest.

exchange controls and cash transaction reportingAustralian and foreign currencies generally may be taken

in and out of Australia without restriction as to amount,

subject to foreign policy based restrictions from time to

time. Most dealings in foreign currencies in Australia must

be transacted with an institution holding an authority from

the Reserve Bank of Australia or licensed to do so by the

Australian Securities and Investments Commission.

Inward investment is not subject to exchange controls,

though this does not preclude the need to obtain approval

from the FIRB, a division of Treasury, in certain situations

(see left column of this page). Outward exchange flows are

not restricted.

However both outward bound and inward bound

exchange flows are subject to cash transaction reporting

guidelines imposed on ‘cash dealers’ and other persons who

send or receive international fund transfer instructions. Cash

dealers which include banks, financial institutions, insurance

companies, currency and bullion dealers and others, must

report to the Australian Transaction Reports and Analysis

Centre (AUSTRAC) details of certain transactions including:

• significant cash transactions involving the transfer of

currency (coin and paper money of Australia or a foreign

country) of A$10,000 or more including foreign currency

equivalents, unless the transaction has been specifically

exempted

• international telegraphic or electronic funds transfers

to and from Australia, unless the transaction has been

specifically exempted

� Australia’s business rules

s P e c i A l r e P o r t E s t a b l i s h i n g a b u s i n E s s i n a u s t r a l i a

P A g e 6

• transactions which the cash dealer has reasonable

grounds to suspect is relevant to criminal activity.

AUSTRAC ensures that cash dealers abide by the account

information, signatory identification and reporting

requirements of the Financial Transaction Reports Act.

Members of the public who carry A$10,000 (or the

foreign equivalent) into or out of Australia, are required

to complete an International Currency Transfer Report

which must be handed to the Australian Customs Service.

There is no limit to the amount carried. There are also no

exemptions to the reporting requirement.

Australia is one of more than 30 countries which

has agreed to implement the 40 recommendations of

the financial Action Task Force on Money Laundering

(FATF) on anti-money laundering and terrorist financing

standards and the additional nine special recommendations

on terrorist financing. As a result, new legislative standards

imposing tighter reporting and monitoring standards

are expected to be implemented shortly in the form of

amendments to the Financial Transaction Reports Act.

These changes are expected to make obligations ‘activities

based’ and will broaden reporting obligations to all persons

who deal in financial products. They are likely to include

closer monitoring and reporting of both inbound and

outward bound foreign exchange transactions.

Acquisitions of companies and businessesAcquisitions of shares and businesses in Australia are

regulated by:

• the Corporations Act

• the Foreign Acquisitions and Takeovers Act (see page 5)

• the Trade Practices Act (see page 15)

• the Listing Rules of Australian Stock Exchange Limited

(ASX)

• legislation affecting the relevant industry of the

corporation or business being acquired.

Depending on the method of acquisition, the following

issues may need to be considered when acquiring shares or

businesses in Australia.

takeovers Acquisitions of substantial interests in Australian

companies are regulated by the takeover provisions of the

Corporations Act. Subject to a few exceptions (including

unlisted companies with 50 or fewer members), if a person

acquires a ‘relevant interest’ in more than 20% of the

issued share capital of a company, that person must make

a takeover bid. The concept of ‘relevant interest’ covers a

broad range of direct and indirect interests in securities and

a person can reach the 20% threshold without becoming a

registered holder of securities.

Takeovers: Shareholdings Thresholds

cgt rollover relief may be available for target

shareholders in scrip for scrip takeover

10% 20% �0% 40% 50% 60% 70% 80% 90% 100%

5%

10%

can block compulsory acquisition by �rd party

Must make takeover bid (or rely on other exemption) to increase shareholding

20%can pass ordinary

resolutions (where permitted to vote)

Ability to defeat special resolution (eg. scheme of arrangement)

firb approval required to increase shareholding

notify market (AsX) of shareholding once reach 5%, and then for each 1% increase

can pass special resolutions (where permitted to vote)

notify target on becoming an 85% holder

can compulsorily acquire bid class securities

50%

15%

25%

75%

85%

80%

90%

P A g e 7

If a person acquires interests in more than 90% of the

voting shares of a company under a takeover offer, the

compulsory acquisition provisions may be used to acquire

the balance, if certain criteria have been met. Compulsory

acquisition provisions can be used in other circumstances

where thresholds are met.

schemes of arrangementIt is common for Australian companies to merge with

foreign companies by way of scheme of arrangement. These

schemes are highly regulated by the Corporations Act and

require shareholder and court approvals.

FundraisingA proprietary company is prohibited from raising funds

from the public. A public company must comply with the

fundraising provisions of the Corporations Act. Usually an

offer of securities must be accompanied by a disclosure

document. Depending on the size and nature of the

offering, the disclosure document may be a prospectus,

profile statement or offer information statement.

Other matters for consideration Other restrictions that may apply to a particular transaction

include:

• under the Corporations Act, the requirement for

substantial shareholding notices to be lodged when

a threshold is reached. The threshold relates to the

number of votes attached to shares in which a person

and their associates have a relevant interest. It may be

reached before shares are actually acquired or transferred.

• under the Listing Rules, provisions regulating various

activities, including the sale of a company’s main

undertaking or the issue of shares over a prescribed

level. These activities require shareholder approval and

must comply with certain ASX requirements.

• a company can only financially assist a person to

acquire shares in itself, if the assistance does not

materially prejudice the company, the shareholders or

the company’s ability to pay its creditors

• a reduction of capital by a company is regulated by the

Corporations Act and requires shareholder approval

• a capital reduction must be fair and reasonable to the

company’s shareholders and not materially prejudice

the company’s ability to pay its creditors

• trading in securities while in possession of information

which is not generally available to the public, but if it

were available would have a material effect on the price

of the securities, is prohibited by the Corporations Act

under insider trading provisions

• if a company continues to trade while insolvent,

directors face personal liability

• transactions between parties which are considered to be

related, usually require shareholder approval.

taxation Australia imposes taxation on the worldwide income of

persons and companies resident in Australia for taxation

purposes and on the Australian-sourced income of non-

residents. Income can have an Australian source even if

paid abroad, and companies or individuals doing business

in or with Australia should be aware that their profits could

become subject to Australian taxation, even though they

may not have an established place of business in Australia.

There are double taxation agreements (DTA) between

Australia and a number of countries (see box). Australia

is currently reviewing its DTAs, for example new treaties

with the USA and the UK have recently been renegotiated

and Australia has commenced negotiations for a double

tax agreement with Chile and Bulgaria. These agreements

mean that, in most cases, tax is imposed only by the

country of residence of the taxpayer. However, the country

100% can elect to consolidate for income tax.

consolidation effectively means that

transactions between Australian entities in

group are ignored for income tax purposes.

90% Ability to compulsorily acquire holdings and

form a group for gst purposes

75% required majority for special resolution

50% general threshold level of foreign ownership

for the ‘thin capitalisation’ rules (but effective

control can exist below this level)

40% combined foreign interests threshold for firb

compulsory notification

20% threshold for compulsory takeover offer

15% threshold for firb compulsory notification

10% foreign tax credit threshold for underlying

foreign tax from ‘related foreign company’

5% notification of a substantial interest

shareholding thresholds which are subject to regulation by australia’s business rules

s P e c i A l r e P o r t E s t a b l i s h i n g a b u s i n E s s i n a u s t r a l i a

P A g e 8

of the source of the income may impose withholding taxes

on dividends, interests and royalties, and may also tax

in full the actual or attributed profits of any commercial

enterprise carried on through a ‘permanent establishment’

in the country.

Australia has also introduced a general non-resident

withholding regime. This regime is subject to regulations

which are continually evolving.

company tax thresholds

residence A company is a resident of Australia for tax purposes if:

• it is incorporated in Australia, or

• where the company is not incorporated in Australia it

carries on business in Australia and either:

– has its central management and control in Australia,

or

– its voting power is controlled by shareholders who

are residents of Australia.

An individual is a resident of Australia for tax purposes

if, generally, he or she resides in Australia. It includes a

person who:

• is domiciled in Australia, unless the Commissioner is

satisfied that the person’s permanent place of abode is

outside Australia,

• is in Australia for at least 183 days in a tax year, unless

he or she does not intend to take up Australian

residence and has a usual place of abode overseas, or

• is a member or eligible employee under certain

superannuation legislation or is the spouse or a child

under 16 of a person covered by such superannuation

legislation.

source of income The determination of the source of particular items of

income is dependent in most cases on matters of practical

fact and, with certain exceptions, is generally determined

on a common law rather than statutory basis. Australian

income tax law also lays down rules in a number of

instances which deem income to have an Australian source,

eg. royalties paid to non-residents.

taxable income and rates of tax Taxable income is computed in the same manner for both

individuals and companies. It is necessary to calculate

the assessable income and deduct from it the allowable

deductions to arrive at the taxable income, on which tax is

charged.

The deductions allowable are generally all those losses

and outgoings incurred in gaining or producing the

assessable income, or necessarily incurred in carrying on

Is your business liable to pay Australian taxes?

# Special airline profits arrangements also apply * Australia has an airline profits arrangement with Greece (but no comprehensive double tax agreement)China does not include Hong Kong or Macau Special Administrative Region.

Note: The dates on which the Double Tax Agreements commence operation vary.

Argentina

Austria

belgium

canada

china #

czech republic

denmark

fiji

finland

france #

germany

greece # *

Hungary

india

indonesia

ireland

italy #

Japan

Kiribati

Malaysia

Malta

Mexico

netherlands

new Zealand

norway

Papua new guinea

Philippines

Poland

romania

russia

singapore

slovak republic

south Africa

south Korea

spain

sri lanka

sweden

switzerland

taiwan

thailand

turkey

united Kingdom

united states of America

Vietnam

australia has Double taxation agreements with:

P A g e 9

business for that purpose, excluding those of a ‘capital,

private or domestic nature’. Certain tax deductions can

be claimed by a taxpayer notwithstanding that they are

of a capital nature, such as deductions for the decline in

value of depreciating assets (known collectively, as capital

allowances) and certain expenses in establishing a business.

Consolidated groupsA new Australian income tax consolidation regime was

introduced with effect from 1 July 2002 whereby wholly

owned Australian groups can elect to be treated as a single

entity for Australian income tax purposes. This effectively

means that intra-group transactions will be ignored for

income tax purposes.

For a consolidated group to exist, there must be a head

company and at least one subsidiary member. There are

slightly different requirements for groups of companies

that have the same foreign ultimate holding company. In

determining whether an entity is part of a wholly-owned

group, shares issued under employee share schemes in

limited cases and certain finance shares may be disregarded.

While entering the consolidation regime is not

mandatory, the previous grouping provisions (which

allowed, for example, loss transfers, CGT roll-overs,

and excess foreign tax credit transfers) ended for most

corporate groups on 30 June 2003 (this date varying for

those groups with substituted accounting periods). As

a result, corporate groups are required to consolidate if

they want any form of ‘single entity’ treatment. There is

an exception for Australian branches of foreign banks.

Generally, loss transfers are permitted between members of

the same wholly-owned group where a party to the transfer

is an Australian branch of a foreign bank, and the other is

either the head company of a consolidated group or a non-

member of a consolidated group.

If a group is consolidated, certain tax attributes

(including tax losses, franking credits and foreign tax

credits) will be transferred to the head company of the

consolidated group. Some tax attributes will remain with

the head company even when a group member leaves the

consolidated group.

australia’s tax ratesThe table on the left summarises the principal rates of

taxation that apply in Australia from 1 July 2005. The rates

may be changed by the Australian Federal Government at

any time. The taxation year runs from 1 July in each year to

30 June in the following year.

Capital gainsCapital gains tax is not a separate tax, but rather, a

component of income tax. Accordingly, capital gains are

taxed at the rate that applies as a result of the level of the

taxpayer’s other taxable income.

CompaniesCompanies are generally taxed at the fixed rate of 30% for

the year of income commencing 1 July 2001 and subsequent

years. Special rates apply to life insurance companies,

friendly societies, and other registered organisations.

tax on capital gains Capital gains are included as part of a taxpayer’s assessable

income and are subject to the same rate of tax as the

taxpayer. Relevant capital gains are those that arise from

taxable income Marginal rate of taxation range a$ 0 – 6,000 0%

6,001 – 21,600 nil + 15% of excess over 6,000

21,601 – 6�,000 2,�40 + �0% of excess over 21,600

6�,001 – 95,000 14,760 + 42% of excess over 6�,000

95,001 and over 28,200 + 47% of excess over 95,000

in addition, a Medicare (national health insurance) levy

is payable by residents. the levy is currently 1.5% of

taxable income. An additional 1% levy surcharge may

be imposed on certain high income earners.

taxable income Marginal rate of taxation range a$ 0 – 21,600 29%

21,601 – 6�,000 6,264 + �0% of excess over 21,600

6�,001 – 95,000 18,684 + 42% of excess over 6�,000

95,001 and over �2,124 + 47% of excess over 95,000

companies are generally taxed at the fixed rate of �0%

for the year of income commencing 1 July 2001 and

subsequent years. special rates apply to life insurance

companies, friendly societies, and other registered

organisations.

Resident individuals

australia’s tax rates 2005–06

Non-resident individuals

Companies

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the disposal of certain assets acquired on or after 20

September 1985. Some exemptions apply, while there are

deemed acquisitions, disposals and valuations for certain

intangible assets such as rights. Certain events such as the

declaration of trust over assets are also treated as capital

gains events.

There are also transitional provisions which can apply

to tax gains on the disposal of assets acquired before

20 September 1985, if there has been a change of more

than 50% in the underlying beneficial ownership of those

assets on or after that date. This is of particular relevance

in the case of a company takeover, as the underlying assets

of the target company may no longer benefit from an

exemption from tax on capital gains, given the change to

share ownership.

A public entity (listed entity) was required to test its

underlying beneficial ownership as at 20 January 1997 (and

then at 5 year periods) and must also do so where there has

been ‘abnormal’ trading in its shares (eg. if 5% or more of

the company’s shares are traded in one transaction).

As a result, many pre-20 September 1985 assets of public

entities may nevertheless be subject to tax on disposal.

Another transitional provision can result in tax applying

to the capital gain that arises on the disposal of an interest

in certain entities acquired before 20 September 1985 if

the market value of the entity’s post-20 September 1985

property (other than trading stock) represents at least 75%

of the entity’s net worth.

The part of a gain that is subject to income tax

(generally the proceeds of sale less the cost of the asset

after offsetting any available capital losses from other asset

disposals) is treated as income and is taxed as such.

Australia imposes tax on the capital gains of non-

residents if the gains arise in respect of the disposal of

assets that have the necessary connection with Australia.

Under current law, a wide range of assets (including

property, interests of more than 10% in trust, shareholdings

of more than 10% in Australian public companies) are

deemed to have the necessary connection with Australia.

However, as part of the 2005 Federal Budget the Australian

Government announced that it intends to introduce

legislation which will narrow the classes of assets that are

deemed to have the necessary connection with Australia.

Broadly, the proposed changes will result in non-residents

only being subject to tax on capital gains if they dispose

of either real property (ie. land), interest related to real

property or business assets of an Australian branch. Rules

will also be introduced to ensure that Australian tax is

not avoided if a non-resident holds interests in real property

via a 10% or greater interest in an interposed entity

(whether resident in Australia or offshore).

The Australian Government has also introduced new

provisions designed to encourage offshore investment in

Australian managed funds. The new provisions apply from

21 March 2005. Broadly, foreign resident investors are now

exempt from tax on capital gains arising from the disposal

of units in an Australian resident managed fund (i.e unit

trust) if at least 90% of the fund’s assets (on a market

valuation basis) do not have the necessary connection with

Australia (eg. foreign land). Where the trust holds interest

in other trusts (directly, indirectly or through a chain of

fixed trusts), an exemption from tax on capital gains will

also be available if at least 90% of the assets held by the

other fixed trusts do no have the necessary connection with

Australia.

For individuals and trusts (but not companies) that

dispose of assets held for at least 12 months, the capital

gain upon which tax is levied is generally halved. For

complying superannuation entities that dispose of assets

held for at least 12 months, the capital gain upon which

tax is levied is generally reduced by one-third.

Roll-over relief may be available in respect of capital

gains made in relation to a takeover bid where shares

or units in one entity are exchanged for shares or units

respectively in another entity. Where roll-over relief is

available, any capital gain made on the disposal of the

original shares or units will be deferred until the disposal

of the exchanged asset. Australia’s tax laws also contain

de-merger rules which provide relief for certain ‘spin-offs’.

Other intra-group roll-overs have been largely replaced by

the consolidation regime. This means that groups that do

not elect to consolidate will not have the benefit of intra-

group roll-overs.

international transfer pricing Australia’s taxation legislation includes provisions which

are intended to prevent tax minimisation which occurs

where businesses do not price dealings with related parties

at prices which accurately reflect the arm’s length price.

These provisions can affect pricing policies between

an Australian company or branch and an overseas parent,

subsidiary or associated entity. The Australian legislation

uses the arms’ length principle in determining how income

and expenses should be allocated in international dealings.

Broadly, the Australian tax authorities follow the OECD

methodology.

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Companies and dividends Companies resident in Australia are assessed on their

profits and taxed at a flat rate (currently 30%). Dividends

which are distributed from after-tax profits are subject

to Australia’s ‘imputation system’. Generally, the system

operates to impute the tax paid by the company as a credit

to shareholders. Dividends with an imputation credit

attached are known as ‘franked dividends’.

The debt/equity regime (discussed in more detail

below) operates to look through the form of financial

transactions to their substance. If the financial arrangement

is equity, then the distributions are frankable whereas if the

financial arrangement is debt, the distribution is deductible

to the entity (subject to certain restrictions) and will not be

frankable.

Recent reforms to the treatment of dividends have had

the following broad effect:

• fully franked dividends paid between resident

companies will continue to be free from income tax

• unfranked dividends will only be free from tax if paid

within a consolidated group of companies

• if a resident company receives a partially unfranked

‘non-portfolio’ dividend and pays it on to a non-

resident parent company, the resident company will

be allowed a deduction with respect to the unfranked

component of the on-payment

• excess imputation credits will be refundable to

individuals, certain trustees assessed to pay tax on a

resident beneficiary’s income, superannuation (pension)

funds and a limited class of other taxpayers including

certain approved deposit funds, pooled superannuation

trusts and life assurance companies

• companies are generally not entitled to refunds of

excess imputation credits

• certain non-portfolio dividends from foreign countries

are not assessable in Australia

• some foreign branch income of Australian companies is

not assessable.

branch offices An overseas company carrying on business in Australia

through a branch or a permanent establishment, is subject

to Australian company tax at the current rate of 30% on

profits attributable to that branch. There is no branch

profits tax.

the outline of further tax reform set out in this guide is based on draft legislation and statements from treasury and the

Ato current at the time of writing (July 2005). the federal government has continued to reform its domestic tax laws but

has placed particular emphasis in recent years on the international impact and competitiveness of those domestic taxing

rights.

the following reforms were recently announced by the government:

Abolition of the rules relating to foreign loss and foreign tax credit segregationcurrently taxpayers cannot apply foreign losses against domestic income. the planned abolition of this quarantining rule

means that taxpayers will be able to elect to apply domestic prior year losses against foreign source income. the change

also means that taxpayers will no longer need to separate foreign losses and foreign tax credits into different classes of

income (as discussed above).

Loss recoupment rules and the Continuity of Business testthe government has introduced proposed legislation to change the rules relating to the carrying forward of losses

in consolidated entities. the continuity of business test (discussed above) will be amended to remove the need for

companies to trace ownership interests smaller than 10%. in addition, the same business test will not be available where

the taxpayer's total income is more than A$100 million.

Taxation of temporary residentsforeign source income of Australian temporary residents is proposed to be exempt from income tax for four years. the

disposal of foreign assets by temporary residents would also not give rise to a capital gain or loss for Australian taxation

purposes.

For these reasons, it is important that this information is used as a guide only, and professional advice is sort on the current state of affairs and their application to your particular circumstances.

Further tax reform

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interest Australia levies a flat rate withholding tax of 10% on

interest paid to a non-resident not having a permanent

establishment in Australia about which the interest is

so connected. This is unaffected by Australia’s Double

Taxation Agreements. The person paying the interest (ie.

the debt) may be exempt from withholding tax in certain

circumstances.

The interest paid by the Australian taxpayer is generally

allowed as a deduction against assessable income and,

accordingly, there may be advantages in financing a

subsidiary by way of debt, rather than equity capital.

However, thin capitalisation rules can limit tax deductions

for interest on debt. The thin capitalisation rules apply

to both inward investing entities and outward investing

entities.

Deductions for interest are denied for thinly capitalised

Australian affiliates of an inward investing entity (eg.

a foreign parent company). Under the ‘safe-harbour’

methodology, such an entity is thinly capitalised if its total

debt exceeds 75% of the value of its Australian assets (less

the value of certain specified liabilities).

The other methodologies focus on an arm’s length

maximum allowable debt or the worldwide gearing of the

group. Different values apply to financial institutions.

Similar rules apply to trusts, partnerships and to direct

investment by a foreign investor, ie. branches and

permanent establishments. Thin capitalisation rules also

apply to the availability of debt deductions for Australian

outward investing entities.

Complex provisions, with effect from 1 July 2001,

classify dealings for certain tax purposes as being either

debt or equity. The test for distinguishing debt interests

from equity interests focuses on economic substance rather

than legal form. The characterisation of an interest as

either debt or equity will determined whether payments

made are deductible (in the case of debt) or frankable (in

the case of equity).

Holders of an equity interest in a company are those

who hold interests which provide returns contingent upon

the economic performance of the company (unless their

interest in a company is a debt interest). The returns may

be either fixed or variable and can include a return of

the amount invested. The right of return may be at the

discretion of the company. The interest in question may

entitle the holder to be issued with an equity interest in the

company.

A debt interest is one which, at the time of its issue,

imposes on the entity what is effectively a non-contingent

obligation to pay an amount to an entity which is at least

equal to the amount received. If an instrument is both debt

and equity, then the instrument is a debt interest.

Specific valuation rules apply to debt interests. The

value of a financial benefit to be provided under a scheme

to which the debt instrument relates is its nominal value

if all of the effectively non-contingent obligations of the

issuer (and connected entities) are to be completed within

10 years. In all other cases, the value is determined in

present value terms.

The rules apply generally to the taxation of interest

payments and dividends (including imputation), thin

capitalisation, treatment of payments to non-residents

and withholding tax. They are not intended to apply to

provisions relating to ownership of companies, certain

leases, derivatives, royalties and employment contracts.

royalties Royalties are payments made by one person for the use

of rights owned by another person. The payments may be

periodic, irregular or one-off.

Royalties are deemed to have a source in Australia if

they are paid to a non-resident by a resident of Australia,

unless the resident pays the royalty in course of carrying

on a business outside Australia at or through a permanent

establishment in another country. Royalties are also

deemed to have a source in Australia if they are amount

paid or credited to a non-resident by another non-resident,

and is, or is in part, an outgoing incurred by the non-

resident payer in the course of carrying on a business in

Australia at or through a permanent establishment in

Australia.

Generally, royalty income derived by a non-resident

from Australian sources is subject to Australian

withholding tax at a rate of 30% on the gross royalty

payment. Where a Double Tax Agreement applies, the rate of

Australian withholding tax is generally limited to 10% of

the gross royalty payment. The entity paying the royalty is

required to withhold and remit the Australian withholding

tax to the Australian Taxation Office.

Royalty income derived by Australian residents will be

included in the Australian resident’s assessable income and

subject to tax at individual or company tax rates.

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lossesSubject to certain restrictions, a company can currently

carry forward its tax losses on revenue account indefinitely,

and can set-off those losses against assessable income

(whether on revenue or capital account). Capital losses can

also be carried forward indefinitely, but can only be set-off

against capital gains.

Broadly, a company’s ability to utilise its carried forward

tax losses may be lost if the continuity of ownership test

is not satisfied. This test requires that more than 50%

of all voting, dividend and capital rights be held by the

same natural persons in the year of income, in the year of

recoupment and all intervening years. Notwithstanding

the failure to satisfy the continuity of ownership test,

a company may utilise its carried forward tax losses if

the company carries on the same business it carried

on immediately before the failure of the continuity of

ownership test.

The Government has introduced proposed legislation

to remove the same business test where the taxpayer’s

total income is more than A$100 million. There is also

a proposal to amend the continuity of ownership test

by removing the requirement for companies to trace

ownership interests smaller than 10%.

Where a company is a member of a tax consolidated

group, carried forward tax losses of the company may be

transferred to the head company of the tax consolidated

group on formation. Use of these losses will be contingent

on the relative value of the company to the rest of the

consolidated group. In addition, utilisation of the carried

forward tax losses by the consolidated group is subject to

the continuity of ownership test or the same business test.

Foreign sourced income Australia’s international taxation rules are based on the

following two concepts:

• Residency – Australian residents are subject to tax on

their worldwide income, and

• Source – non-Australian residents are subject to tax

only on their Australian source income.

residency, double taxation and foreign tax credits The taxation of worldwide income earned by Australian

residents may result in double taxation problems. Double

taxation is generally relieved by means of either a foreign

tax credit or a tax exemption. A foreign tax credit is a

credit allowed for foreign tax that is paid by an Australian

resident on foreign sourced income which is also assessable

in Australia. Foreign tax credits can only be applied

against the particular income class to which they relate.

The current classes are: passive income, offshore banking

income, a component of a lump sum from certain eligible

non-resident non-complying superannuation funds and

other income. There is currently a proposal to abolish the

provisions regarding the categorisation of foreign sourced

income.

source and CFC regimeAn Australian resident taxpayer may have included in its

assessable income a proportion of the attributable income

of controlled foreign corporations (CFCs) in which the

Australian residents has an interest.

An Australian resident taxpayer may also have included

in its assessable income any income which they derive from

a Foreign Investment Fund (FIF). A FIF interest means any

form of equity, rights and options, convertible securities

and similar interests held in a foreign company.

Recent changes to Australia’s taxation of foreign source

income allow companies to disregard capital gains which

arise from the sale of shares in active foreign subsidiaries.

Previously, there was only an exemption for foreign

dividends and branch profits. These provisions are known

as the ‘participation exemption’ rules.

Dividends paid to australian branchesFrom 26 June 2005, dividend withholding tax no longer

applies to dividends paid to an Australian branch of a

non-resident company or individual. This is because both

franked and unfranked dividends paid by an Australian

company are now included in the assessable income of

a non-resident company or individual. This only occurs

where dividends are attributable to an Australian branch of

a non-resident.

tax concessions Australia offers general incentives to encourage investment

into Australia. Some specific concessions that are available

include:

• deductions for certain set-up or relocation costs in

establishing a regional headquarters in Australia

• exemption from dividend withholding tax for certain

foreign source dividends

• research and development deductions to eligible

Australian resident companies of up to 125% (with a

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175% deduction potentially available for additional

incremental expenditure)

• exemption from capital gains and income tax on

disposal of the investment for certain non-resident

investors who invest in venture capital in Australia

• immediate deduction or two year write-off for capital

expenditure in acquiring interest in initial copyright of

films

• capital gains on the sale of shares in a foreign company

held by an Australian company will be disregarded

where the foreign company has an active underlying

business.

Investors proposing to use Australia as an intermediary in

their investment strategy should seek professional advice as

to availability of any taxation concessions (including those

mentioned above) and the effect of the foreign tax credit

system and offshore banking units.

goods and services tax A goods and services tax (GST) has applied in Australia

since 1 July 2000 to the supply of goods, real property,

services and other supplies (such as intangible rights).

Broadly, the GST is similar in operation to the value added

tax systems operating in Europe.

GST is payable at the rate of 10% of the value of a

taxable supply. A taxable supply arises where:

• the supply is made for consideration

• the supply is made in the course of an ‘enterprise’ the

supplier carries on

• the supply is ‘connected with Australia’, and

• the supplier is registered or required to be registered.

An entity is required to be registered for GST if it carries

on an enterprise (which includes but is not limited to

a business) that has an annual turnover in excess of

A$50,000 from supplies that are connected with Australia.

The definition of supply under the GST law is drafted

broadly as ‘any form of supply whatsoever’ and includes the

supply of goods, services, real property, advice, information

and rights. It also includes an obligation to do anything or

to refrain from an act or to tolerate a situation. Similarly,

consideration is defined broadly to include ‘any payment,

act or forbearance’ made in connection with the supply

or for the inducement of the supply. This includes the

provision of non-monetary consideration.

A supply will be ‘connected with Australia’ if:

• in the case of goods, the goods are delivered in

Australia, made available in Australia or are imported

into or exported from Australia

• in the case of real property (including an interest in,

or right over, land), if the real property is located in

Australia

• in the case of anything other than goods and real

property, if the ‘thing’ is done in Australia or supplied

through an enterprise carried on in Australia (ie.

an enterprise carried on through a permanent

establishment in Australia, as defined for this purpose).

Whether a supply is ‘done’ in Australia will depend on

its nature – for example, the Australian Taxation Office

regards a supply of rights to be ‘done’ in the place

where the agreement to supply those rights is made.

GST registered suppliers will generally be entitled to claim

an input tax credit (effectively a GST refund) for the GST

component of the cost of goods and services acquired in

the course of carrying on their enterprise.

In certain circumstances, some supplies will not be

‘taxable supplies’ and therefore will not be subject to GST.

These non-taxable supplies include:

• GST-free supplies – for which no GST is payable by

the supplier, but the supplier may still be entitled to an

input tax credit (ie. a GST refund) for things acquired

to make the supply. Examples of GST-free supplies

include certain types of food, education courses and the

export of goods or outbound supply of intangibles such

as rights or services for use or consumption outside of

Australia.

• input taxed supplies – for which no GST will be

payable, but the supplier will not be entitled to an input

tax credit in respect of goods and services acquired to

make the input taxed supply. Examples of these supplies

include financial supplies and residential rent.

A GST registered entity is required to submit GST returns

to the Australian Tax Office either quarterly or monthly

depending on its annual turnover. An entity with an

annual turnover of A$20 million or more is required to

submit returns monthly. Entities with an annual turnover

of less than A$20 million may submit returns quarterly or

may elect to submit returns monthly.

state taxes Each of Australia’s six states and two territories impose

their own form of taxes. The two most significant types of

state based tax are:

• stamp duty, and

• payroll tax.

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In New South Wales, the Australian Capital Territory,

Victoria, Tasmania and Queensland, stamp duty is a

tax imposed on dutiable transactions. In all the other

jurisdictions, stamp duty is a tax on instruments. The rate

of tax imposed by stamp duties legislation varies in each

jurisdiction.

Stamp duty will generally not be payable on the

establishment of a business. However, a stamp duty liability

will arise where an existing business is purchased, where a

business asset is purchased or when land (from which the

business will be conducted) is purchased. If financing is

required to establish the business, then stamp duty will be

payable where that transaction is secured.

All employers are subject to payroll tax based on the

amount of wages they pay to employees. Each state has

set certain exemption thresholds. These thresholds mean

that payroll tax is not payable until the total amount

of Australian wages paid by an employer reaches the

threshold.

Certain other state-based taxes include land tax

(imposed when the value of land owned by a taxpayer

exceeds a certain amount) and land rich provisions.

competition and consumer protection lawThe Australian Trade Practices Act (TPA) regulates

competition and consumer protection law in Australia.

The competition provisions of the TPA are based on

anti-trust legislation in the USA and are not dissimilar to

the anti-trust provisions of the European Community’s Treaty

of Rome. The TPA prohibits:

• anti-competitive behaviour

• misuse of market power

• anti-competitive mergers

• unfair business practices when dealing with small

businesses.

It also:

• imposes obligations on businesses designed to protect

consumers

• provides an access regime for essential facilities and

a specific access and competition regime for the

telecommunications industry.

The Australian Competition and Consumer Commission

(ACCC) is responsible for administering and enforcing

the TPA. It has the power to authorise, on public benefit

grounds, some conduct which may otherwise breach the

Act.

Competition provisionsAnti-competitive behaviour

The Trade Practices Act prohibits anti-competitive behaviour.

Under the TPA, the following conduct is illegal:

• agreements between competitors to fix, maintain or

control prices

• agreements between competitors to split up a market or

customers

• agreements between competitors not to deal with

particular suppliers, customers or other competitors

• the supply of goods or services on condition that the

customer purchase goods or services from a third party

• inducing resellers not to sell products below a specified

price.

The TPA also prohibits agreements, arrangements or

understandings which have the purpose, effect or likely

effect of substantially lessening competition in a market.

Misuse of market power

It is illegal for a corporation that has a substantial degree

of market power to take advantage of that power for the

purpose of:

• eliminating or substantially damaging a competitor

• preventing someone from entering the market as a

competitor

• deterring or preventing a person from competing.

Mergers and acquisitions

The TPA prohibits the acquisition of shares or assets of

a company if the acquisition is likely to have the effect of

substantially lessening competition in a market in Australia.

The acquisition of a foreign company by a foreign

company may be subject to the TPA if, as a consequence

of obtaining a controlling interest in a foreign company, a

controlling interest in a company in Australia is acquired.

Unfair business conduct aimed at small businesses

The TPA aims to protect businesses, particularly small

businesses, by prohibiting:

• misleading conduct in business transactions – this is

extremely broad and includes not only the making of

untrue statements about present matters, but also the

making of unfounded or unreasonable predictions or

statements as to future matters

• unconscionable conduct in business transactions

– the TPA makes it illegal for businesses to engage

in unconscionable conduct in business transactions

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worth less than a prescribed amount (A$3 million),

with businesses that are not listed companies.

Unconscionable conduct includes the use of a strong

bargaining position to extract unreasonably onerous

terms from another business.

Industry codes

The TPA provides a regime for the declaration of industry

codes whereby a code can be established to regulate the

conduct of participants in an industry towards consumers

or other participants in the industry. Industry codes can

be voluntary or mandatory in nature, focusing on general

competition and consumer protection issues. To date only

the franchising industry code has been declared.

Consumer protectionThe consumer protection provisions of the TPA aim to

protect consumers by:

• prohibiting misleading conduct – this is extremely

broad, and includes not only the making of untrue

claims or statements but also omitting to give all

relevant details and failing to correct mistaken

impressions.

• prohibiting unconscionable conduct – it is illegal in

business dealings to take advantage of a consumer's

vulnerable circumstances. These include a consumer

having poor reading or writing skills, poor English

language skills or lacking business know-how.

• implying warranties into sales transactions with

consumers – the TPA implies warranties into sales

transactions relating to the quality and standard of

goods and services supplied. These warranties cannot

be excluded from supply transactions with consumers.

• liability of manufacturers and importers for defective

goods – the TPA essentially defines defective goods as

those which are unsafe. Liability for defective goods can

rest with a manufacturer, an importer, or someone who

allows their name or logo to appear on a good sold in

Australia.

access regime and telecommunicationsAccess regime

The TPA provides a system under which businesses

can obtain access to essential facilities that cannot be

economically duplicated, but to which access is necessary

in order to compete. It does this by setting up a mechanism

under which:

• services provided by essential facilities can be ‘declared’

• businesses can obtain access to ‘declared’ services

• owners or those in control of a facility can give the

ACCC access undertakings.

The following types of essential facilities have been declared

under the access regime: gas distribution networks or

pipelines; railway access; commercial shipping channels;

and freight handling services at international airports.

Telecommunications regime

The TPA contains a telecommunications specific access

regime which requires network operators to offer ‘declared

services’ (such as interconnection and local loop access)

to their rivals. The ACCC has the power, under some

circumstances, to arbitrate access disputes and will do so

using a long run incremental cost approach.

breaching the trade Practices actThe penalties for breaching the TPA are substantial.

The maximum penalty for a corporation breaching the

competition provisions of TPA is currently A$10 million

and the consumer protection provisions, A$1.1 million.

Individuals can also incur penalties for breach of the

competition provisions of up to A$500,000 and the

consumer protection provisions of up to A$220,000.

Some higher penalties apply for specific categories of

misrepresentation, for example, as to country of origin or

over-statement of GST. In addition, damages and other

remedies, such as injunctions and adverse publicity orders,

may be awarded.

It is anticipated that civil penalties for breach of the

TPA will increase dramatically and that the competition

provisions will be supplemented by a criminal penalty of up

to five years’ imprisonment for individuals.

The TPA implications of business conduct and

transactions can often be complex. It is for this reason

that it is advisable to seek professional advice on the issue

before carrying on business in Australia, or entering into a

transaction which may affect a market in Australia.

intellectual propertyAustralia’s laws provide comprehensive protection for

intellectual property including:

• copyright

• patents for inventions

• trade names and trade marks

• domain names

• trade secrets and confidential information

• registered designs

• circuit layouts

• plant breeds.

Australia’s intellectual property laws meet its international

trade and treaty obligations, for example, under the General

Agreement on Tariffs and Trade TRIPS Agreement, and have

also been amended in the light of the recent Free Trade

Agreement between Australia and the US.

Australia’s intellectual property laws address the

significant developments in technology and the Internet,

primarily through provisions of the Copyright Act. Major

reforms to the Designs Act have also been recently

implemented.

CopyrightCopyright is the exclusive right to reproduce, publish,

perform, communicate and adapt original literary (including

computer programs), artistic, dramatic and musical works,

together with other protected subject matter such as films

and sound recordings.

Copyright arises automatically on creation of a work

and generally continues for 70 years after the death of the

author.

Australia is a member of the various international

conventions on copyright and so affords reciprocal

protection for copyright recognised in other member

countries.

The Copyright Act has been through a number of reforms

to address copyright issues arising in the ‘internet age’. As a

result, the Copyright Act:

• protects copyright owners from the unauthorised

digitisation of their works and unauthorised

communication of their works over the internet and other

electronic means

• limits the liability of internet service providers and

software manufacturers for copyright infringement by

users of their facilities and software

• prohibits the making, sale, distribution and use of

circumvention devices for the purpose of circumventing a

technological protection measure.

Prohibition of unauthorised imports is subject to significant

exceptions. The Copyright Act permits the parallel importation

of overseas published books and sound recordings, as well

as, more recently, electronic literary and music items and

computer software.

Australia’s copyright laws also provide for the protection

of moral rights, which give authors both the right of

attribution and the right to have copyrighted works treated

with integrity.

PatentsThis area is governed by the Patents Act 1990 and guided by

the case law. In some circumstances, the 1952 Patents Act

remains relevant.

A standard patent confers on the patentee the exclusive

right to exploit commercially the patented invention, for a

term of 20 years.

An innovation patent is designed to provide faster

protection of small innovative steps, and confers eight years

of protection. It can be filed on-line, and is granted after

only a formalities check. If the patentee wishes to enforce the

innovation patent, the patent must be examined and certified

prior to enforcement. Innovation patents are not available for

biological processes for the generation of plants and animals.

Petty patents, providing up to six years of protection, were

granted between 1979 and 2001 and continue to exist under

transitional provisions.

The invention must be detailed in a specification (which

may be provisional, later followed by a complete specification)

describing the invention and concluding with claims that

determine the ambit of the monopoly afforded by the patent.

The invention must be novel and amount to a manner

of manufacture as that phrase is understood. The invention

must also involve either an inventive step (for a standard

patent) or an innovative step (for an innovation patent). The

specification must be clear, not ambiguous and the claims

fairly based on the matter disclosed.

trade names and trade marksAustralia protects reputation and goodwill in names through

passing off law and consumer protection laws which prohibit

misleading commercial conduct.

In addition, Australia has a registered trade mark system

for names, logos, devices, sounds, smells, colours and shapes

that distinguish the goods or services of an owner from those

of other owners.

Australia follows the international system of classification

of goods and services. Early trade mark registration is

desirable for those seeking to enter the Australian market.

Australia also has state-based systems of business names laws

for persons carrying on business under a name other than

their own name.

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Domain namesVarious classes of domain names ending in .au may be

registered. Domain names ending in .com.au and .com

are the most popular as addresses for commercial entities

operating in Australia.

For a .com.au domain name, a substantial and close

connection must exist between the commercial entity and

that entity’s domain name, which can be demonstrated by

reference to the trade marks, ‘nicknames’ or acronyms of an

entity not just its company or business name.

Many of the restrictions on the registration of generic

names have been lifted and the restriction on registering

geographic names as domain names has recently been

lifted. Geographic domain names are now available for

all Australian locations which have a post code with the

exception of airport names; hospital names; university

names; defence force names; government names; postal

names or names with Australia Post designators (eg. BC,

MC, PO); or names that have already been registered in

com.au or net.au. These names were initially offered through

a ballot process, with the remaining names becoming

available through an application process. While the domain

name ballot has now closed, the allocation has not yet been

announced. Therefore at the time of writing, the application

process for remaining names has not yet opened.

Registration of a .com.au domain name does not create

any proprietary rights in the name. Australian courts will,

however, recognise rights in domain names where there is a

reputation or goodwill in the name (see under trade names

and trade marks above).

trade secrets and confidential informationBoth through contract and where information is imparted

in confidential circumstances for a limited purpose,

effective protection is provided for technical know-how,

customer lists and other confidential information against

disclosure and use, or for an unauthorised purpose.

registered designsUnder revised legislation enacted in 2003, the Designs

Act provides for the registration and protection, for a

period of up to ten years, of any design that is both ‘new’

and ‘distinctive’. A design is the ‘overall appearance of

a product resulting from one or more visual features of

a product’ including shape, configuration, pattern and

ornamentation.

Registration in Australia requires that the design be

novel and not have been publicly used in Australia or

published in a document anywhere in the world prior to

applying for registration in Australia.

The new Act makes the registration and protection

of a design much simpler. Registered designs are also

afforded greater protection as owners only need to show

that another design is ‘substantially similar’ to prove

infringement rather than proving that the infringing design

is a ‘fraudulent and obvious imitation’ of the registered

design.

Importantly, the new Act introduces a defence for spare

parts. This defence allows third parties to manufacture

legitimate spare parts for complex products without

infringing the registered design in the complex product.

Circuit layoutsThe Circuit Layouts Act provides copyright style protection

for original circuit layouts, or integrated circuits made in

accordance with the circuit layout.

Plant varietiesProtection of new plant varieties is provided by the Plant

Breeders’ Rights Act.

employment and industrial relations

Reform underwayAt the time of publication (October 2005), the Federal

Government is proposing to radically change the

Australian industrial relations system and, as part of this,

largely abolish the state systems.

To keep abreast of the latest developments, view the

latest editions of HR&IR Update, our newsletter posted on

the Legal Insights pages of www.minterellison.com

The Australian workplace operates subject to a

combination of legislation (both state and federal),

industrial instruments (including awards and enterprise

agreements) and contracts of various kinds. These

govern the individual relationship between employers

and employees (employment law), and also the collective

relationships of employers with their workforces (industrial

relations law).

P A g e 1 9

industrial relations lawAustralia has a unique system of settling industrial disputes

by compulsory conciliation and arbitration before federal

and state industrial tribunals.

In settling disputes, the tribunals can make ‘awards’

that is, legally enforceable determinations which relate

to conditions of employment for all employees to whom

they apply. Awards establish minimum conditions of

employment (or, occasionally, actual terms and conditions

of employment) in particular industries or occupations.

While it is not common, awards may also apply to a

particular employer only. Awards may be made at either

the state or federal level. Most (but not all) employees in

Australia are covered by awards. Awards deal with matters

such as:

• rates of pay

• hours of work

• overtime rates

• penalty rates for shift, weekend and holiday work

• sick leave and other leave entitlements

annual holidaysemployees are generally entitled to four weeks’ annual leave after each year of service. employees whose employment

is governed by awards are generally paid an additional 17.5% leave loading on their annual leave pay.

long service leaveemployees are entitled to receive paid leave from work as a reward for long continuous service with an employer

(or series of related employers). typical long service leave provision is for approximately a month’s leave for each five

years of continuous service. the entitlement usually becomes available to the employee after ten or more years.

Parental leavefederal and state legislation provide minimum entitlements to parental leave, including maternity, paternity and

adoption leave. typical maternity leave legislative provisions provide for a maximum of 52 weeks’ leave when an

employee has been employed for 12 months. industrial instruments and contracts of employment may provide

additional entitlements.

Workers’ compensationemployees who are injured in the course of employment or who suffer disease arising out of their employment are

entitled to compensation, and to protection from unfair termination of employment as a result of injury. employers have

a positive duty to find appropriate alternative employment for a partially injured employee.

Occupational health and safetyemployers have a duty to ensure the health, safety and welfare of their employees while they are at work.

unlawful discriminationit is unlawful to discriminate against people in the area of employment on a range of grounds including sex, age,

disability and race. the grounds of discrimination differ under the legislation of each state and territory.

redundancy procedures and paymentstate legislation prescribes minimum entitlements and empowers tribunals to award payments in cases of redundancy.

federal legislation gives the federal industrial tribunal the power to make orders in relation to severance payments and

group retrenchments. if the employee is made redundant, the employee may be entitled to a redundancy payment

based on the employee’s age and length of service. However, redundancy is not a universal entitlement.

unfair dismissalsboth federal and state legislation address the issue of dismissal, essentially requiring employers to act in accordance with

the concept of ‘a fair go all round’. the remedies of reinstatement or compensation may be available to an employee.

unfair contractsin some jurisdictions, industrial tribunals have the power to vary contracts under which work is done if they are unfair,

harsh, unreasonable or against the public interest.

typical employee entitlements

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• redundancy

• termination of employment.

An employer may need to apply a number of awards at a

single enterprise. As trade unions are generally established

with reference to occupations or industries, rather than a

single enterprise, there will be a number of trade unions

which have rights to representation at an enterprise.

Awards are often supplemented at a particular

enterprise by an enterprise agreement. Enterprise

agreements are usually registered or approved by an

industrial tribunal. The different legislation in various

jurisdictions results in several different forms of enterprise

agreements around Australia. There are also provisions for

agreements with individual employees, called Australian

Workplace Agreements (AWAs).

As a general rule, it is not possible for an employer and

an employee to agree to a condition of employment which

is below that specified in an applicable award, enterprise

agreement or AWA.

Employment lawIn addition to the award and enterprise agreement systems,

common law rules and federal and state laws apply to

employment relationships.

Federal legislation deals with minimum superannuation

payments to be made by employers for their employees.

State (and sometimes federal) legislation also deals with

the types of employee entitlements shown below.

Subject to this legislation and to applicable industrial

instruments, employers are able to make contracts of

employment with employees, covering a range of matters.

Policies and practices covering employment and industrial

related issues may also be implemented.

It is important for anyone planning to establish or

purchase a business in Australia to ascertain the terms of

any awards, agreements and employment legislation which

may apply to existing or prospective employees. The terms

of contracts of employment and relevant policies and

practices should also be reviewed.

P A g e 2 1

australia

sydneyAurora Place88 Phillip streetsydney nsW 2000telephone +61 2 9921 8888facsimile +61 2 9921 812�

Leigh Brown, Martin Bennett, James Philips, Andrew Bullock, Costas Condoleon, Peter Capodistrias

Melbournerialto towers525 collins streetMelbourne Vic �000telephone +61 � 8608 2000facsimile +61 � 8608 1000

John Steven, Jeff Faure

Canberralevel �, 25 national circuitforrest canberra Act 260�telephone +61 2 6225 �000facsimile +61 2 6225 1000

Neal Parkinson

brisbaneWaterfront Place1 eagle streetbrisbane Qld 4000telephone +61 7 �119 6000facsimile +61 7 �119 1000

Gary Goldman, William Thompson, Bruce Cowley, Dan Williams

adelaide*1 King William streetAdelaide sA 5000telephone +61 8 82�� 5555facsimile +61 8 8212 7518

Brett Thorneycroft, Louisa McClurg, Paul Ingram

Perth*level 49 central Park152-158 st george’s terracePerth WA 6000telephone +61 8 9429 7444facsimile +61 8 9429 7666

Graham Nagle, Laurie Shervington

gold Coast*159 Varsity ParadeVarsity lakes Qld 4227telephone +61 7 555� 9400facsimile +61 7 5575 9911

John Witheriff, Ken Petty

Darwin*level 4, 66 smith streetdarwin nt 0800telephone +61 8 8981 ��99facsimile +61 8 8981 8757

Cris Cureton

nEW ZEalanD

aucklandMinter ellison rudd Watts*lumley centre, 88 shortland streetAuckland new Zealandtelephone +64 9 �5� 9700facsimile +64 9 �5� 9701

Peter Rowe, Cathy Quinn

WellingtonMinter ellison rudd Watts*125 the terraceWellington new Zealandtelephone +64 4 498 5000facsimile +64 4 498 5001

Paul Foley

unitED KingDOM

london10 dominion streetlondon ec2M 2eetelephone +44 20 7448 4800facsimile +44 20 7448 4848

Robert Hanley, Michael Whalley

usa

san Francisco50 california street�6th floorsan francisco cA 94111 usAtelephone +1 415 869 6400facsimile +1 415 869 64�0

Darren Gardner, Richard Horton

asia

hong Kong911-918 Hutchison House10 Harcourt roadcentralHong Kongtelephone +85 2 2841 6888facsimile +85 2 2810 02�5

Sam Farrands

shanghaisuite 6211-6212floor 62, Plaza 661266 nan Jing West roadshanghai 200040People’s republic of chinatelephone +86 21 6288 2171facsimile +86 21 6288 2172

David Cox

JakartaMakarim & taira s**level 17, summitmas tower 1Jl Jenderalsudirman 61-62Jakarta 12190indonesiatelephone +62 21 252 1272facsimile +62 21 252 2750

Susie Beaumont [email protected]

* Minter ellison group member

** Associated firm

You can email these individual lawyers by using:

[email protected],

apart from lawyers in new Zealand, where

[email protected] should

be used.

www.minterellison.com

Minter ellison group offices

© Minter ellison october 2005