Corporate residency test – ATO’s new approach - 21 June 2018
On 21 June 2018, the Australian Taxation Office (ATO) released Tax Ruling TR 2018/5 (the Ruling), a draft Practical Compliance Guideline PCG 2018/D3 (draft PCG) and a Compendium to TR 2018/5 in relation to the central management and control (CMAC) test of corporate residency.
The Ruling sets out the Commissioner’s new approach on the CMAC test and overturns the approach the ATO took in TR 2004/15.
The Ruling and draft PCG has the potential to treat a significant number of foreign incorporated companies that carry out operational activities as Australian tax residents. This expansion is likely to result in adverse tax consequences for Australian groups. Therefore, special consideration should be given to the way that foreign subsidiaries Boards are run.
The Ruling applies from 15 March 2017. There is a grand fathering of the former Ruling approach until six months after the release of the Ruling, i.e. likely to be 21 December 2018 (conditions apply).
Published: June 2018