Is your company or trust a resident of Australia for tax purposes?
At first instance, many people would presume that the answer to this residency question is a straight forward yes or no answer. However, given the ease and increasing prevalence with which companies and trusts now conduct international business and other transactions online, determining the residency status of the entity can often be a complex exercise. When the business transactions are not all conducted within Australia, or the stakeholders and trustees are not all Australian residents, the determination of the entity’s residency relies on an assessment of a range of factors. Since no single factor is independently definitive, different weighting is given to each factor as every entity’s circumstances are different. This grey area is where things start getting complicated.
Basics of Company Residency
The principle test of whether a company is a resident of Australia depends on whether the company was incorporated in Australia. If yes, the company is a resident of Australia for tax purposes.
However, if it was not incorporated in Australia but carries on business in Australia, the company is still an Australian resident for tax purposes if it has either:
1. Its central management and control is in Australia; or
2. Its voting power controlled by shareholders who are residents of Australia.
The first limb was intended to apply to companies who were incorporated overseas but whose principal business is located in Australia. Yet, this raises further questions of what is meant by carrying on business in Australia, central management and control. Addressing these questions require a thorough investigation of the relevant entity, its directors and business personnel as well as consideration of precedent cases before the courts.
The second limb requires an investigation into the shareholders of a company, which, in more complex structures, may not be easily determinable.
Basics of Trust Residency
A trust is an Australian resident trust estate in an income year if a trustee of the estate was an Australian resident for tax purposes at any time during that income year.
Again, if the trustee is a non-resident of Australia for tax purposes, the test depends on whether the central management and control of the trust estate was in Australia at any time during the income year.
It should be noted that unlike the situation with companies, there is no requirement for the trust to carry on business in Australia. However, similar considerations as to the central management and control are required to satisfy this test as in the case of a company explained above.
The world of tax can be extremely complex and if obligations are not adhered to it can often become quite stressful, not to mention costly. The accountants, lawyers and tax agents at The Quinn Group are able to assist you with all tax and ATO related matters. For advice or more information contact us now by submitting an online enquiry form or call 1300 QUINNS or on +61 2 9223 9166.