Appeal lost: Foreign companies were tax residents of Australia
Recent changes are outlined below:
July 1, 2022
- Loss carry back for eligible companies extended to cover 2023 income year.
- Professional firm profits diverted to the professional's spouse or other associates to be reviewed under new Tax Office guidance.
- Corporate collective investment vehicle legislative regime introduced.
- Temporary full expensing of depreciating assets extended to include 2023 income year.
- Depreciable assets of a company joining a tax consolidation group have tax costs setting rules modified for assets depreciated under temporary full expensing rules.
December 9, 2021
- Reduced Pandemic leave disaster payment of $750 per week made available through to 30 June 2022.
August 5, 2021
- COVID-19 Disaster Payments are non-assessable non-exempt income in 2021 income year and later. Payments phasing out as vaccination rates increase.
July 1, 2021
- New Investment Engagement Service launched for businesses planning significant new investments in Australia.
- Tax Office small business independent review service made permanent for businesses with turnover < $10m, for income tax, GST, exercise, luxury car tax, wine equalisation tax and fuel tax credits. Requested before amended assessment issued.
- Small business income tax offset for individuals increased to provide a reduction of 16% for a tax payable up to $1,000.
- Self-managed superannuation funds can now have six members, increased from four members previously.
July 1, 2021
- Some COVID -19 state and territory business grants received by small and medium enterprises are non-assessable, non-exempt income for 2021 and 2022 income years.
- Certain state, territory and local government financial support for individuals and businesses suffering COVID-19 impacts made exempt where businesses have turnover less than $50 million and only in eligible programs.
March 31, 2021
- JobKeeper payments scheme ended.
October 5, 2020
- Boosting apprenticeship commencements subsidy (up to 50% of apprentice's wages) is assessable income.
June 4, 2020
- Homebuilder grant for new home or substantial renovation construction is not subject to income tax.
April 1, 2020
- COVID-19 cash flow boost payments are not subject to income tax
The Full Bench of the Federal Court declined an appeal by multiple foreign companies against an assessment based on them being Australian tax residents.
The foreign companies included:
- Hua Wang Bank Berhad (offshore bank incorporated in Samoa);
- Bywater Investments Limited (incorporated in the Bahamas);
- Chemical Trustee Limited (incorporated in the UK); and
- Derrin Brothers Property Limited (incorporated in the UK).
Documents provided in evidence indicated that all of the companies were ultimately owned and controlled by an accountant based in Sydney. Each company made profits buying and selling ASX listed shares. If they were non-resident and the shares were held on capital account then no tax would have been due.
The Tax Office previously issued assessments for the years between 2000 and 2007.
Despite Board meetings being held in the relevant jurisdiction, the Full Bench held that the central management and control of the companies was “where the real business of each of the taxpayers” was undertaken and that was in Sydney by the accountant.
The companies have sought special leave to appeal to the High Court.
Residency of companies
Under Australian tax legislation, a company will be a resident of Australia if it is registered here or its central management and control is exercised here. Under most Double Tax Agreements, where a company is resident of both of the treaty countries, tax residency will be deemed (or tie-broken) to be the place of effective management.
The place of “central management and control” and “effective management” are similar concepts and are the places where “real” decision making happens for the company.
With increasing international operations, both large and small corporate groups need to be careful of the location where decision making, including at Board meetings, takes place. Careful minutes and other records should be maintained.
The real business of a company will vary depending on its operations. Sometimes the real business is more strategic and other times it is more operational or of a trading nature.
Bywater Investments Limited and Ors v FCT 2015 ATC 20-549
Andrew and Tony Lovett
15 February 2016
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