Date posted: 6/10/2020

Australian Federal Budget 2020-21 - Corporate Residency rules revised

In a Revised policy to apply from 15 March 2017, a company will be considered resident if it has ‘significant economic connection’ to Australia.

In brief

  • A company will be considered resident if it has ‘significant economic connection’ to Australia
  • Announcement addresses 2016 High Court case and follows Board of Taxation recommendation
  • Taxpayers can apply new rules from 15 March 2017 when ATO withdrew TR 2004/15

What is a “significant connection” to Australia?

This is defined as where both “the company’s core commercial activities are undertaken in Australia and its central management and controls are in Australia”.

Why make these changes?

A 2016 High Court Case (Bywater Investments Ltd v Federal Commissioner of Taxation) departed from the ATO’s long held interpretation of company tax residency rules. In 2020 the Board of Taxation made recommendations to the government. The Treasurer said the changes are “consistent” with the Board’s key recommendation in its 2020 report: ‘Review of Corporate Tax Residency’.

What is the date of effect?

The first year after amending legislation receives Royal Assent but taxpayers can voluntarily apply the new rules from 15 March 2017, the date the ATO withdrew TR 2004/15 (Income tax: residence of companies not incorporated in Australia — carrying on a business in Australia and central management and control).

Budget Paper No 2

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Australian Federal Budget 2020-21

View the Australian Federal Budget overview, commentary, opinions and media releases brought down on 6 October 2020.

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