This blog article talks about the Central Management and Control CMAC and Australian Company Tax Residency.
There are three tests to determine if a company is a resident of Australia for income tax purposes. If any of the following tests are satisfied then the company will be a resident of Australia for tax purposes:
Importantly, historically tests (2) and (3) have traditionally been viewed with the requirement that a company actual carry on business in Australia and conduct business trading operations in Australia.
A recent case on residency between the Commissioner of Taxation and Bywater Investments Ltd (Bywater case) has given rise to significant changes. Following the case, the Commissioner issued a tax ruling (TR 2018/5) which supported the decision in the Bywater case.
The Commissioner also withdrew his previous tax ruling (TR 2004/15) which provided guidance on the CMAC corporate residence test. The key changes have resulted in the following interpretations:
Therefore, if a foreign company’s CMAC is located in Australia (despite not trading in Australia), it will be deemed to be an Australian tax resident company.
The location of a company’s CMAC is a question of fact. There are four considerations relevant to locating CMAC:
So, if your foreign incorporated company has Australian resident shareholders or directors, it’s crucial to thoroughly examine the CMAC position. Make sure the company isn’t classified as a tax resident of Australia. Implementing suitable tax governance policies and arrangements can help minimize any potential risks.
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