TAX TIP #17: | RESIDENCY | COMPANY

Facts

Companies C & D are both US registered companies.

The majority of the board of both companies are US resident directors.

They each operate a business in Australia.

The companies are unrelated.

Company C’s majority shareholder is an Australian resident entity.

Company D’s majority shareholder is a US resident entity.

Question

Are either or both Company C or D residents of Australia for tax purposes?

Answer

Company C is a resident of Australia.

Company D is not a resident of Australia.

Tax Tip

A company is a resident of Australia if it satisfies either of the following (see section 6 ITAA 1936 – definition of “resident or resident of Australia”):

1. it is incorporated in Australia; or

2. it satisfies both of the following:

   1. it carries on business in Australia; and

   2. it has either:

      1. its central management and control in Australia; or

      2. its voting power controlled by shareholders who are residents of Australia.

Company C

It does not satisfy paragraph 1 because it is not incorporated in Australia.

It satisfies paragraph 2(a) because it carries on business in Australia.

It does not satisfy paragraph (2)(b)(i) because the majority of its board are US resident directors.

It satisfies paragraph 2(b)(ii) because its majority shareholder is a resident of Australia and controls the voting power of the company because it has the majority shareholding vote at shareholder meetings.

Company C is a resident of Australia even though it is incorporated in the US.

All of Company C’s profits are taxable in Australia.

Note, there a more tax effective structures when dealing with cross-border businesses.

Company D

It does not satisfy paragraph 1 because it is not incorporated in Australia.

It satisfies paragraph 2(a) because it carries on business in Australia.

It does not satisfy paragraph (2)(b)(i) because the majority of its board are US resident directors.

It does not satisfy paragraph 2(b)(ii) because its majority shareholder is a US resident entity and the voting power is controlled outside Australia.

Company D is not a resident of Australia.

Note, the profits generated by the business carried on in Australia will be taxable in Australia in accordance with the US-Australia Tax Treaty.

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