Australia has one of the most complex tax regimes in the world, especially when compared to the relatively small size of its economy. The recent introduction of tax consolidation and the transition to IFRS have added further complexities to the compliance and financial reporting processes, increasing compliance costs and the need for strong tax systems and internal controls.
Australian companies and superannuation funds pay income tax directly. Other Australian entities, such as trusts, partnerships and unincorporated joint ventures, generally "flow through" their taxable income and associated tax liability to their beneficiaries (eg. unit holders), partners and JV parties, respectively.
In Australia, income tax returns are lodged with the Australian Taxation Office (ATO) on a self-assessment basis. The ATO has a comprehensive audit process that targets high risk taxpayers and reviews their tax returns after lodgment. The ATO can levy high penalties for incorrectly lodged returns.
From a compliance perspective, income tax compliance systems and processes need to automate and provide good control over the preparation of income tax returns, particularly in the areas of tax consolidation, capital gains tax (CGT), capital allowances, research & development (R&D) and foreign income.
Tax compliance systems need to integrate with tax-effect accounting systems in order to generate true-ups between tax provision calculations and lodged income tax return.
Income tax software also needs to calculate and project progressive tax payments under the Pay As You Go (PAYG) system for cash management purposes.