New corporate residency test: Board of Taxation releases report

The Board of Taxation released its report Review of Corporate Tax Residency on 6 October 2020. The report was completed in July 2020.

The Government announced in the Budget that it will make technical amendments to the rules to clarify the corporate residency test which are to be “consistent” with the report.

The Board has also released 20 submissions dealing with the proposal, which make for interesting reading (there were a further 6 that were submitted on the basis of confidentiality).

The amendments will 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.

This change will mean the treatment of foreign incorporated companies will reflect the corporate residency position prior to the 2016 High Court decision in Bywater Investments Ltd & Ors v FCT [2016] HCA 45.

It will have effect from the first income year after the date of assent of the enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017 (the date on which the ATO withdrew its ruling TR 2004/15).

Ian has worked at Thomson Reuters for over 15 years as a senior tax analyst with expertise in income tax and GST. He has been involved in tax publishing for over 25 years.

Prior to his tax writing career, Ian worked as a manager for a Big 4 accountancy firm and then with a firm which provided specialist tax advice for the music and recording industry.

Ian holds a Bachelor of Economics degree, is a Chartered Accountant and a registered tax agent. Among other things, Ian is the author of the Australian GST Handbook, the GST Commentary Service, the Australian Financial Planning Handbook and the specialist income tax commentary services, as well as being a regular contributor to the news services.

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