Independent Review – The Treasury
On 6 October 2020, as part of the 2020-21 Budget, the Government responded to the Board of Taxation’s (the Board’s) final report on its review of the operation of Australia’s corporate tax residency rules, announcing that it will adopt the Board’s key recommendations.
The Government will amend the law to provide that a company which 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 also 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 and Ors v Commissioner of Taxation.
It will have effect from the first income year after the date of Royal 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).
The Treasury has certified the Board’s final report and consultation papers, as a process and analysis equivalent to a Regulation Impact Statement (RIS). The Office of Best Practice Regulation (OBPR) does not assess the quality of independent reviews, but does assess whether the options analysed in the independent review are relevant to the regulatory proposal. The OBPR assessed that the options analysed in the independent review are sufficiently relevant to the regulatory proposal.
The Treasury has self-assessed the estimated regulatory burden of this change on business, community organisations and individuals and considers that it would have a negligible effect.
A copy of the Board’s final report and further information is available here.
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