Corporate residency test to be clarified
The Government will make technical amendments to clarify the corporate residency test.
The law will be amended to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a “significant economic connection to Australia”. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.
The Government said that the corporate residency rules are fundamental to determining a company’s Australian income tax liability. The ATO’s interpretation following the High Court’s decision in Bywater Investments Ltd v FCT (2016) 104 ATR 82 departed from the long-held position on the definition of a corporate resident. The Government asked the Board of Taxation to review the definition in 2019–2020.
This measure is consistent with the Board’s key recommendation in its 2020 report: Review of Corporate Tax Residency and will mean the treatment of foreign incorporated companies will reflect the position prior to the High Court’s decision in Bywater.
The measure will have effect from the first income year after the date of the enabling legislation receives assent, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew Ruling TR 2004/15: Residence of companies not incorporated in Australia — carrying on a business in Australia and central management and control).