Hi, or should we say G'day! Welcome to the first part of our deep-dive guide, which looks at moving to and living in Australia.

The guide covers everything from the basics of the Australian lifestyle, known for its laid-back and outdoor-oriented culture, to the tax systems, which are generally progressive and based on income. We'll also touch on topics like relocating with pets and setting up a business. 

In this first part, we cover some basic facts about the country and explore the Australian Tax System. Each week, we'll add new content, including visas, culture in Australia, the pros and cons of moving to Australia, permanent residence, and the costs of moving to Australia, to name but a few.

Join us as we explore the stunning continent of Australia.

Sydney Opera House

Australia is an ancient continent filled with inviting contrasts, and it is the only continent with just one nation on it; geologically, it is believed to be the oldest continent on the earth. The land is the world’s largest island, which was split from the remnants of the southern supercontinent, Gondwana, about 40 million years ago. The diversity in landscape and cosmopolitan style was what Stephen King described on his motorcycle in Australia: “If you stop, the silence is incredible. You feel tiny; you can almost hear God breathing.” The wildlife ranges from koalas, giant red kangaroos, and spine-covered echidna to the platypus. The fauna includes the Boab (baobab), Spinifex grass, and Wollemi Pine. Australia’s Aborigines lived within tribal boundaries they believed had been created by their ancestors in a period called the Dreamtime. The climatic diversity allows Australia to produce tropical fruits such as custard apples and rambutans. UNESCO World Heritage sites include the Great Barrier Reef and the Tasmanian Wilderness to the Wet Tropics of Queensland and Uluru-kata Tjuta. The country’s coastline is also 36,735km (almost 23,000 miles) long and includes a plethora of beaches where the sea meets the sky. What differentiates Australia’s sea is the Great Barrier Reef, and on the West Coast, you can swim with whale sharks off the coast of Exmouth.

Swimming with a Whale Shark

Country Fact File

States: The commonwealth of Australia, comprising the six States of New South Wales, Victoria, Queensland, South Australia, Western Australia, and Tasmania, was created by the Constitution Act 63 and 64, Victoria, Chapter 12, which received Royal Assent on the 9th July, 1900. 

Continent: The Australian continent broke away from its last adjoining landmass, Antarctica, 40 million years ago and embarked on a long period of geographical isolation. During this time, Australia’s flora and fauna evolved and flourished. Aboriginals lived for at least 40,000 years, developing the land to their own needs, until the arrival of Europeans in 1770. 

Capital: The capital, Canberra, is in the Australian Capital Territory, but the most populous city is Sydney. Tasmania, an island state, lies 240 km (150 miles) off the southern tip of the country, across the Bass Strait. 

Population: Australia has a population of 26,939,482 in 2024 according to the Population Division of the Department of Economic and Social Affairs of United Nations – World Population Prospects.

Most widely spoken language: English 

Climate: Australia’s drift towards the equator at the rate of 8cm (3in) a year has brought a northern monsoon climate. The sun habitually shines and its atmosphere is of such remarkable clarity that the sunlight strengthens the colourings of landscape and seascapes. The temperature in the Northern Hemisphere will find that winter runs from June to August, from November to March it is warmer temperatures with high humidity and rain in the North. In the South, from April to September, the tropics can be clear and warm. El Niño is a complex climate pattern that causes major weather shifts around the South Pacific. The cycle of flood and drought that El Niño brings to Australia is profound. 

Area: Australia measures about 4,000km (2,500 miles) east to west and 3,200km (2,000 miles) north to south. It is greater than that of the USA; that it is four-fifths of Canada; and more than one-fourth of the whole of the British Empire; and twenty-five times as large as any of the United Kingdom approximately. 

Currency: The Australian dollar, AUD (A$)

Form of government: Australia has been a federation with a central government based in Canberra, each state also has its government. The nation inherited the central parliamentary system from England, with the two-party system of Labor and a coalition of Liberal and National parties. Australia is a self-governing member of the British Commonwealth and retains the English monarch as its titular head of state.  

GDP (total) Estimate $1,505.60 USD Billions

GDP growth: 1.5% as of December 2023

GDP (per capita) 62.6 thousand U.S. dollars per capita

Human Development Index (HDI) 0.951

Inflation: 3.4 per cent in the 12 months to January 2024

Australian Lifestyle and Culture – A varied topography

The unparalleled beauty of Australia is a breathtaking marvel, unrivaled in nature. The landscape offers a feast for the eyes and a source of wonder for the mind. The Blue Mountains, adorned with magnificent eroding waters, have meticulously sculpted tablelands, expansive valleys, and profound ravines that seem to explore the very core of the Earth. Discover the enchanting wonders of Jenolan caves and Buchan caves, traverse the majestic Kosciuszko range in the Australian Alps, and indulge in the coastal allure of seaside resorts lining the Southern Ocean from Gabo all the way along Bass Strait to Cape Otway.

World Heritage Purnululu National Park (The Bungle Bungle).

In addition to the indigenous cultures, Australia's population is a melting pot of influences from Europe, Asia, the Middle East, and beyond. This diversity is reflected in the culinary scene, where you can savour a wide array of international cuisines, from Mediterranean and Asian to Middle Eastern and beyond. The coastal beauty of Australia is truly captivating, offering a panoramic view that stretches across an impressive 36,735 kilometers of coastline, inclusive of the picturesque Tasmania. Venturing into the underwater realms of the Indo-Pacific and the Indian Ocean reveals a captivating experience, especially in renowned areas like Lord Howe Island and Papua New Guinea.

These underwater havens beckon divers with their rich biodiversity and awe-inspiring marine landscapes. The tropical regions of Australia, exemplified by the iconic Great Barrier Reef, showcase a stunning diversity of underwater life. Yet, the coastal waters bordering Queensland, the Northern Territory, and Western Australia offer a distinctive twist, boasting an exclusive array of endemic species. This is where the underwater explorer can witness a more unique and detailed display of Australia's marine ecosystem.

Delving into the depths of these coastal waters unveils a staggering variety of underwater creatures, with over 20,000 different species calling the Australian underwater landscape. 

Australian tax system - Australia Income Tax Agents

In Australia, income tax is levied only by the Commonwealth of Australia and not the individual states. PAYE deductions are paid by your employer to the tax office monthly. At the end of the tax year, which is 30th June, each employee receives a Group Certificate. This is your total earnings, as well as the deductions for tax, superannuation contributions, union levies, and so on. It is essential to have the certificate when you fill in your Tax returns. You should apply to your nearest Tax Office for a tax file number (TFN). The TFN is a unique number issued to individuals and organizations for identification and record-keeping purposes. It is important to keep your TFN secure. Allowing someone else to use your TFN can cause you serious problems.

Tax levy on Medicare will be 2% of the taxable income unless you qualify for a reduction or an exemption. It is a levy that is added to the tax-payers income tax assessment and collected at the same time as the ordinary tax.

 In Australia, the tax for married couples who both work is also taxed separately and this means individual entitlement to tax-free thresholds and other benefits. The deadline to lodge your tax returns is the 31st of October, but if you use an income tax agent, then this could be at a later date, and if you fail to lodge a tax return, then the fine could be a maximum of $550. 

If you are under the age of 18 then the tax would be slightly different, outlined as follows:

With reference to government departments:

https://www.ato.gov.au/tax-rates-and-codes/tax-rates-australian-residents

www.ato.gov.au

Tax and Compliance- Council Tax

In the case of rented properties, council tax should always be included in the rental charge. If you purchase a property, the council will be notified as part of the buying process and will send notifications to you accordingly. Council tax rates will vary by state and by council. Each council determines the exact way the tax is calculated; it is loosely based on the value of the land.

Australia has a progressive and complex tax system. The more you earn, the more you pay. No source of income is exempt. Everyone drawing an income requires a Tax File Number (TFN] - it is a unique identifier to you in relation to your earnings. This is similar to the National Insurance (NI] number in the UK. Visit www.ato.gov.au to register for a TFN and for more details on tax compliance. You will need the usual 100 points of identification, and the TEN application can be completed online or in person at an ATO office. You will receive your unique number in the mail once processed. Everyone who receives an income, in whatever form, must file a tax return every year. The tax year runs from July 1-June 30 every year, and the equivalent here of the HM Revenue & Customs is the Australian Tax Office (ATO). Most who are unfamiliar with accounts will have a qualified accountant or bookkeeper that can help with this process and file the return electronically on your behalf. Tax is a complex issue in any country. For further information relating to your specific circumstances, I recommend that you approach an accountant as soon as any question or uncertainty arises.

Sales tax – Goods and Services Tax

Sales tax is referred to as GST - Goods and Services Tax - and, at the time of writing, is 10%. The norm is for most prices in retail shops to include GST. However, do look out for this, as some pricing (such as services) will have GST on top of the price quoted. Most food items not considered a luxury' that are purchased from a grocery store or supermarket are not subject to GST. Food served to you in a restaurant or café, however, is subject to GST.

All income earners must pay a Medicare Levy and surcharges but may be eligible for certain rebates. This is income tested in line with tiered thresholds. People who choose to have medical insurance receive a reduced premium, contributed to by the government.

Setting up a business in Australia - Cooperation tax rates

If you are thinking of starting a business in Australia, you will need a TFN and an Australian business number (ABN).

Obviously, you will need a bank account, and you'll also have to register for Goods and Services Tax (GST). Australian law requires you to pay money into a superannuation account for each person you employ. You will not be required to lodge a tax return if your taxable income is below the tax-free threshold of $18,200. For provisional taxpayers, which means if you are self-employed or if you are free-lance in addition to your full-time employment or earn interest or dividends from investments, you might be classified as a Provisional Taxpayer. This would result in you having to pay tax in advance, and for new start-ups, this could incur a heavy tax burden. The tax on your income will apply to all sources, including salary, rents, royalties, dividends, and interest paid to you in or out of Australia.

Join us next time as we cover - The Pros and Cons of moving to Australia

You may be thinking about moving or you may have already decided that Australia is the place for me. You will be joining many others that have gone down under to enjoy the sun and enjoy life outdoors.

It can be a minefield trying to organise and understand what you need to move and what options are best for you.

This will give you an easy-to-understand guide on some of the most popular visas available to you and how to start the process.

Skilled Independent Visa

The most popular and straightforward visa to apply for is the skilled visa. This is for individuals who are moving and have skills and experience in one or more of the occupations on the skilled occupation list.

With this visa, you can:

• Live, work and study anywhere in Australia
• Enrol in Australia’s public health care scheme
• Sponsor your relative
• After a certain time, you could be eligible for Citizenship

The visa costs AUD4,640.00 for the main applicant. For any family members you wish to add to the application, there will be an added cost.

Before you apply; You must complete the Eligibility assessment and score 65 points or more. You must submit your expression of interest (EOI) through Skillselect telling the Australian Government that you are interested in applying for a visa, You should provide proof of health and have any necessary health checks before applying to have a better chance of being accepted.

You will then be invited to apply for the visa formally, you can do this by logging into your Skillselect account. You will need to apply within 60 days of receiving your invitation so you should have all your documents ready before being sent the invitation so you are prepared. The application will tell you what documents you need and you must attach them all at the time of applying, not after you submit.

You need, an ID, Character documents, your results from the eligibility assessment, and proof that you are proficient in the English Language.

If your application was successful they will tell you:

• your visa grant number
• the date your visa starts
• your visa conditions, if applicable

Skilled Nominated Visa

The visa costs AUD4,640.00 for the main applicant

You can be nominated when you submit your EOI and a state or territory government agency decides to nominate you to be able to apply for the visa.

You can contact these agencies by state directly to inform them you are interested in a visa and have completed the EOI.

The state and territory agencies include:

• Australia Capital Territory
• New South Wales
• Northern Territory
• Queensland
• South Australia
• Tasmania
• Victoria
• Western Australia

To be nominated for this visa you must:

• Be 45 or under when you are invited to apply
• Have a suitable skills assessment from the last 3 years
• Have obtained 65 or more points from the Skills assessment and the EOI
• Have skills or an occupation on the skilled occupation list.
• Meet the health requirements and take part in a health check
• Have competent English
• Meet the character requirements which include a clean criminal record and immigration record, E.G. not had a visa cancelled in the past or have been deported in the past.

With this Visa, you can live and work permanently in Australia and sign up for the public health care scheme. You will be able to sponsor relatives to join you in Australia. You will be able to travel to and from Australia freely for 5 years, after this has expired you will have to apply for a Resident Return (RRV) visa (subclass 155 or 157).

Employer Nomination Scheme visa

The visa costs AUD4,640.00 for the main applicant.

If you are moving to Australia for a job then your employer can nominate you for a visa. You must be already working or will be working for the employer on arrival to Australia.

You must:

• Have the necessary skills for the job.
• Be nominated by an Australian employer.
• Meet the health and character requirements.

With this visa, you can:

• Live and work in Australia for 5 years
• Travel to and from Australia for 5 years
• You may be able to apply for permanent residence after 3 years from the time your Employer Nominated visa began.

With this visa there are three routes you can take, the employer-sponsored stream which allows employers to fill the shortages in their industries. The labour agreement stream is only for employers who are part of this agreement. Finally, the subsequent entrant is for family members who are joining the main applicant on an employer-nominated visa.

These are the three most common visa’s for people moving to Australia

Average Monthly Expenditure

According to the most recent government statistics, the average expenditure for an average household in Australia is $1425. The spending is dependent on the territory, with the northern territories and the capital city having the highest average expenditure. 

Housing is the most money-intensive expenditure in Australia. On average, a four-member family (two parents and two children) spends $1900 on rent, $350 on utilities (gas, water, and electricity), $70 on the internet, $90 on phones, and $120 on public transport (assuming one partner uses public transport five days in a week).

Other expenses include groceries at $950, insurance at $240, motor vehicle maintenance and registration expenses at $220, and petrol at $80, which amount to a monthly budget of $4,030.

School Fees

If you have school-going children, the expenditure can increase significantly depending on the type of schooling you want your children to attend. If you choose a public school for your kids, the increase in expenditure may not be as significant. You will need to pay between $0 to $150 for excursions, voluntary contributions, and uniforms for both primary and secondary education. However, if you choose to take them to a private school, you will have to part with anything between $200 to $3000 for primary school and $250 to $4000 for secondary school per month.

Other Factors

The figures mentioned above represent the average cost of living for a family, which can vary widely from one family to another depending on various factors. For example, if both parents in a household have a car, vehicle maintenance would rise significantly while the cost of public transportation would drop.

Rent will also be dependent on your geographical location. Even in the same city, the prices can vary widely based on the suburb of residence. Rental prices can range from as low as $800 to $4000 monthly, meaning you have to choose where to live based on what you can afford or where your job takes you.

Safeguarding Your Income

Your ability to keep up with your homestead's expenditure largely depends on your ability to earn a living. Unfortunately, emergencies often strike without notice, leaving you unable to meet your financial obligations. 

The best way to ensure that you have a continuous flow of money to meet household bills, even after a temporary or permanent disability, would be to carry income protection insurance. An income protection insurance steps in after an injury that renders you unable to work and pays up to 70% of your pretax income. 

If you are not sure where to buy an income protection cover in Australia, an online comparison tool like iSelect can help. The comparison resource helps you compare local providers, making it easy to spot the cheapest income protection insurance deal from a list of available options. 

Keep Track Of Your Monthly Spending

If you are planning to increase your savings for a future project, you need to prioritise keeping track of your expenditure. Keeping track of your expenditure starts by downloading your bank statement to understand how you spend money. Some banks go as far as classifying your expenditures from the most basic to the least essential expenditure, which can help you make better decisions when cutting down your spending.

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Shares in China’s second-largest property developer Evergrande have plunged by almost 17% as investors weigh up whether the company’s huge debt problems could trigger a broader sell-off across other financial markets. 

In Hong Kong on Monday, Evergrande fell to its lowest market value ever, trawling the Hang Seng index down to its lowest point in almost a year. Other large property stocks in Hong Kong, such as Henderson Land and New World Development, also saw double-figure falls in their prices on Monday amid widespread anticipation that Evergrande will default on some of its debt repayments this week. The property developer currently owes $300 billion. 

There are concerns that such a move by Evergrande could have a dramatic knock-on effect throughout the Chinese economy and even beyond. 

This contagion factor was most perceptible in Australia as the benchmark ASX200 index closed down 2.1% on Monday as investors abandoned mining stocks such as Rio and BHP. The price of iron ore — Australia’s main export — also fell by 60% from its high point back in May due to a slowdown in the Chinese property and construction industries. If Evergrande were to collapse, such issues within the sectors would only accelerate. 

Qantas Airways, the largest airline in Australia by fleet size, has posted an annual loss of $2 billion – the company’s greatest loss in its 100-year history.

CEO Alan Joyce admitted that Qantas’s recovery "will take time and it will be choppy," warning of a "significant underlying loss" to come in the next financial year.

Joyce added that he expects the airline to have resumed around 50% of its international operations by the middle of 2022. “International, we think, will take a bit of time to recover. In financial year 2022, we are only expecting to get 50% of our international operation back and we’re thinking it will take three years before we can get our A380s back in the air,” he said.

“When we do, we’ll start getting back to pre-COVID-19 levels.”

Like other multinational airlines, Qantas has greatly scaled back its global operations, in addition to announcing plans to lay off 6,000 employees in June. 4,000 of these planned layoffs are expected to be finalised by the end of August.

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Australia has been particularly affected by state and national travel border closures in response to the COVID-19 pandemic, which were a partial cause of the collapse of Virgin Australia in April.

In a sign of the continuing impact of the pandemic on the air travel industry, flight booking site Webjet reported losses of $143.5 million on Wednesday, and recently released traffic figures showed that only 317,000 passengers passed through Australia’s busiest airport, Sydney, in June – a decrease of 92% annually.

Chief executive of Westpac, Brian Hartzer plans to step down next week after the bank was sued by Australian regulators for an alleged 23 million breaches of counter-terrorism and money laundering regulations involving $11bn worth of transactions.

Controversy has also risen surrounding the $2.7 million payout Hartzer will receive, as confirmed by Westpac last week.

BBC reports that the majority of the infractions involved late reporting of overseas transactions, and the Australian Transaction Reports and Analysis Centre (Austrac) claims it has also linked several of the transactions to "child exploitation risks". Westpac, also the oldest bank in Australia, allegedly failed to monitor the accounts of an Australian convicted sex offender who had been sending money over to the Philippines.

The bank’s chairman, Lindsay Maxsted has rejected the notion that more board members at the bank should be axed and

The Australian government has described the reported breaches as “very serious” and the Labor opposition spokesman, Jim Chalmers, says the failures of Westpac are "nothing short of disgraceful.”

The study, which looks at cash and cashless technology usage in four markets—the UK, Australia, Brazil, and South Africa—shows that a cashless society may not be a realistic ambition. In fact, the survey revealed an “immovable” 24% of consumers who will never abandon cash—no matter what technological advance or leap forward is available to them.

In Brazil and South Africa, where cash use is more common, there is a strong desire for wider acceptance of cashless technologies such as payment cards and digital wallets. In both markets, 60% say that they are worried about having cash stolen from them which suggests fear of theft is a key driver rather than convenience.

In the UK and Australia, however, where the use of cashless technologies is more widespread, people are happier with their use of cash. Around 80% of people in both markets say that they are comfortable using cash.

Respondents across all countries saw cash as part of their day-to-day lives. They carry cash at all times, replenishing their wallets and purses regularly at ATMs, and are unwilling to go that last extra mile and never use cash again.

The findings suggest that cashless technologies will not replace cash completely; instead people are happier with an equilibrium between the two.

“While the proliferation of cashless payment technologies has generally led to a reduction in cash usage across developed economies, banknotes have unique properties that consumers value, such as security against fraud,” said Michael Batley, Head of Strategy, Travelex. “As long as this is the case it’s unlikely that any attempts to abandon cash completely will succeed. Even Sweden’s bid to go cashless, touted as a successful model, has seen pushback. Ultimately, only consumer demand will drive the change towards a truly cashless society and our research indicates this is further away than many realise.”

As well as revealing a lack of appetite for a cashless society, the study also reveals that opinion is split on whether it is even possible. The UK, the most ‘cashless’ country surveyed, represented the highest proportion (47%) of respondents that do not see an end to cash, closely followed by Australia (42%).

Travelex commissioned Sapio Research to survey 1,000 consumers regarding their attitudes to cash and cashless technology across four markets: the UK, Australia, Brazil and South Africa. These four countries are at different points in the “journey towards cashlessness”, as defined by Mastercard’s Measuring progress toward a cashless society report, and together give a representative overview.

(Source: Travelex)

Leary & Partners quantity surveyor and tax law expert, Kaylene Arkcoll forecasts a bleaker future for investors in Australia’s residential property -- particularly strata units.

The budget has stripped investors buying second-hand residential properties of a major tax deduction.

Pre-budget there was intense speculation about limits on negative gearing. Instead, Ms Arkcoll explains, in an unexpected move the Government has restricted one of the standard forms of residential investment deduction.

"Purchasers of second-hand residential investment units have lost their ability to claim depreciation on plant and equipment which is part of the property at the time of purchase.

The Government will limit plant and equipment depreciation deductions to outlays actually incurred by investors. There is no lead-time with these changes -- they apply to all contracts entered after 7.30 pm (AEST) on 9^th May 2017."

The change is forecast to save AUD $260 million dollars over the next four years.

Being able to claim depreciation on investment properties is a powerful driver for most investors. For second-hand residential properties the budget roadblocks this avenue of investment joy for everyone except investors who carry out renovations or replacements. In Ms Arkcoll's opinion, "Older building stock may now be less desirable".

Details of the policy are still limited but Ms Arkcoll says: "It appears that:

• The intent of the policy is to restrict depreciation claims to items purchased and installed in the property by the claiming taxpayer.
• Depreciation deductions will remain available for items that are part of a new property purchased from a developer, although this is not explicitly stated in the budget papers.
• Subsequent purchasers of the property will no longer be able to claim depreciation based on the second-hand value of the plant and equipment.
• Taxpayers already depreciating plant and equipment can continue to claim deductions in the current manner."

"The removal of depreciation claims will have a double impact on strata property owners", Ms Arkcoll explains. "They will lose both the claim for depreciable items inside their unit and depreciation of their share of common plant and equipment. This will mean a reduction in annual tax deductions that in the early years of ownership range from approximately AUD $3,000 for a simple unit to over AUD $40,000 for an upmarket unit in a high-rise development."

"Until we see more detail we won't be able to fully assess the ramifications of the budget announcement. It is likely that we will be operating with uncertainty for an extended period until the draft legislation is released." And Ms Arkcoll continues, "The elephant in the room remains the government's ability to pass such a substantial change through a volatile senate."

Ms Arkcoll does have some good news for investors however: "Thankfully, there has been no change to the 2.5% Division 43 construction allowance which applies to most properties constructed in the past thirty years."

(Source: Leary & Partners)

Over the next few pages, Finance Monthly speaks with one of Australia's leading tax lawyers - Dr Niv Tadmore, who introduces us to the Australian transfer pricing system.

What are the most important features of the new transfer pricing provisions in Australia?

Australia's new transfer pricing rules have some important differences to the OECD Guidelines.

In the past, the question was more focused on pricing the transaction, whereas now the question would be what are we pricing - the transaction that actually took place, or a notional transaction?  In other words, the first question is moving towards "what is the counterfactual"?

However, transfer pricing in Australia is now expected to move towards restructuring and recharacterisations.

What makes the Australian Taxation Office (ATO) likely to review a taxpayer’s affairs? Are there any particular risk factors to be aware of?

The ATO generally reviews almost all large transactions. If the transaction is large, but simple and routine, then the level of scrutiny may be light. The more complex the transaction and the less comparables there are, the higher the likelihood of intense scrutiny is. Among the risk factors that one needs to be aware of are:

• the global economic value creation chain and hubs;
• profitable functions that are performed outside Australia in low tax jurisdictions, such as Singapore;
• dealings in intangibles;
• restructures;
• project finance in Australia;
• financial instruments, derivatives and hybrids; and
• large industries such as LNG.

What can be done to reinforce a taxpayer’s transfer pricing position in anticipation of an ATO review?

First of all - strengthening traditional transfer pricing documentation. In order to achieve this, the focus should not be only on the economic analysis, but also on the factual assumptions, which require substantiation by way of admissible evidence. It is important to remember that the ATO challenges the factual assumptions in the taxpayer’s transfer pricing documentation. Very importantly, the taxpayer bears the onus of proof. The economic analysis may be undermined if the assumption cannot be proven as a matter of fact by the taxpayer.

Another vital step in the process is considering the counterfactual from the beginning. There are two questions that the taxpayer should ask (and be able to prove, using evidence to support their assertions): “What other option would be available to achieve a commercial outcome?” and “Why are those options less favourable to the Australian entity than the transaction that actually took place?”

What is the ATO focus in transfer pricing disputes? How has this changed over time?

The ATO traditionally focused on pricing and tended to accept assertions made by taxpayers. In contrast, today the ATO does not accept assertions – it challenges them. It also looks at counterfactuals and takes a global perspective, focusing on the global value economic value creation chain, beyond Australia.

Do you have any particular tips for taxpayers to bear in mind when being reviewed by the ATO?

Timing and resourcing tips:

-Transfer pricing reviews by the ATO are often lengthy. As a rough guide, they may take a year and a half to two and a half years;

-Taxpayers will normally have resource constraints and should use their resources efficiently and wisely throughout the period. Taxpayers should bear in mind that the information gathering process that takes place at the beginning of the process could be quite resource intensive.

Relationship tips:

• As distinct from other countries, the ATO is suspicious of an overly formal approach adopted by taxpayers;
• It is important to keep a constructive relationship and dialogue with the audit team, although that may not be easy at all times. In our experience, this is the most constructive and effective way to handle a dispute;
• Sometimes a taxpayer may feel that a particular decision or conduct of the audit team requires escalation to a higher team within the ATO. In certain cases, such a view will be warranted, however we would recommend not overusing this approach, in order to maintain its effectiveness.

Process tips:

• Information requests can be onerous in terms of scope and timeframe. We advise taxpayers to engage with the ATO regarding how the scope of a request can be narrowed and what the timeframe should be;
• Once the scope and the timeframe of the request are settled, it is important to get on with the process and ensure it is done in accordance with what has been agreed. Rightly or wrongly, delays can make the ATO suspicious and that can then result in a negative impact on the dispute going forward.

What is your approach to resolving transfer pricing disputes with the ATO?

Relationship approach:

-Remember that the ATO’s approach and philosophy may be different to that of other revenue authorities;

-One of the key drivers in a review context will be constructive engagement with the ATO;

-Engagement is based on a voluntary framework, rather than a formal and legalistic framework imposed by the ATO;

- A formal framework is not only much more costly and onerous, but it is also likely to lead to less favourable outcomes and potentially litigation in open court.

Timing approach:

• There is a tendency among taxpayers, especially those who are not experienced in the Australian dispute environment, to propose resolution at the very early stages of the review, typically during the information gathering process;
• The ATO as a matter of principle would be reluctant to resolve matters at this stage before receiving and reviewing the information. Unless there are really obvious cases, such as attempts would have a strategically negative outcome. The ATO may also perceive this approach as being ‘too little, too early’, and this could be viewed with suspicion by the ATO;
• After the information gathering process is complete, the ATO would the issue a position paper. This is the point where the ATO would start to feel more comfortable to discuss a resolution of the matter.

Settlement approach:

-Settlement discussions should occur on a without prejudice basis;

-The guiding principle for both sides will be what the ATO calls the ‘litigation risk test:

• this is effectively an assessment by the ATO of its chances to win or lose the case if it went to court;
• given that we have new law today in Australia, part of the litigation risk may be based on legal questions based on the interpretation and construction of the new provisions;
• in addition, many times the lion's share of the litigation risk will be based on factual issues and the ability to prove them. The litigation risk is based on the ability to prove the correctness of the assertions and the economic analysis of the taxpayer, and the ATO will assess the quality and the admissibility of the evidence the taxpayer can produce. This is significant given that the onus of proof is on the taxpayer;

-Very recently, the ATO created a new function, called Independent Assurance of Settlements. This is a review of settlements on which the ATO has already agreed conducted by retired judges:

• its purpose is to assure the community that the ATO is conducting a settlement process properly and to enable the ATO to improve its settlement processes as well;
• this is a new process, and is only a few weeks old. One of the more obvious implications is that the settlement submission should be tailored to the eyes of a judge rather than just the eyes of an economist, for example. This means that the emphasis should be more on the legal and evidentiary analysis of the taxpayer’s offer.

How do you see the Australian transfer pricing landscape developing in the future?

Like in other countries, transfer pricing will be an area with increasing revenue office focus because the law is new and there's large amounts of money at stake.

The ATO has significantly boosted its internal resources by recruitment in this particular area and we are certainly seeing a growth in terms of the scope, intensity and comprehensiveness of ATO reviews.

We think the ATO will be more and more willing to use its reconstruction powers and will take a stricter approach to penalties.

Whilst there is a growing trend to increase the use of Advance Pricing Agreements (APAs) and the ATO has been encouraging their use, the ATO is becoming more selective regarding which taxpayers may be admitted to the process and more rigorous when reviewing APA applications.  There may be scope for growing disputes between the ATO and other revenue offices when bilateral APAs are negotiated, or where disputes involving the Mutual Agreement Procedure provisions in treaties arise.  Australia is one of 20 countries committed to mandatory binding arbitration under the Base Erosion and Profit Shifting (BEPS) project.

The ATO has also said it would look to run some test cases in order to test the boundaries of the law.  Identifying test cases it wants to run forms part of the ATO review process.

We see that transfer pricing is becoming a more important agenda item, not only within internal tax teams, but also at the level of senior management of the company.

An effective risk management system around transfer pricing may not prevent an audit by the ATO, but may make the audit process less onerous, with much higher likelihood of a positive outcome.

Food for thought

Do you have a mantra or motto you live by when it comes to helping your clients?

My key principle is that you have to put yourself in the client's shoes and look at the issue from their broader perspective.This means never considering the narrow legal issue in a vacuum, but looking at the broader issues that affect the company, such as the relationship with the ATO, governance and certainty and above all, the broader commercial context of the dispute.

What would be your top 3 tips on ‘going the extra step’?

• Adopt a solution-oriented approach - try to progress and resolve matters, rather than adopting a narrow focus solely based on a legal argumentative approach.
• Be proactive with the client and the ATO - anticipate the next steps and be ready to handle them.
• Conventional ideas can only take you so far - to resolve the difficult issues we deal with, you often need to broaden the spectrum of possible approaches and solutions to the issue at hand.

What does a typical day in the office look like for you?

I like to start each day with a run. Once I'm in the office, my day involves:

• a lot of client interaction;
• engaging in discussions with the ATO;
• discussing strategy with the team; and
• supervising and settling documents and submissions to the ATO.

It is a dynamic practice and no two days are the same.

Career highlights

• building a team of 10 excellent lawyers with whom I enjoy working;
• building a practice that includes some of the largest groups in the world as clients; and
• developing the position of a thought leader in my area of expertise.

[Contact details]

Website: https://www.claytonutz.com/