Tax Alert

Article

New Zealand companies may be Australian resident under ATO ruling

Tax Alert - July 2018

Is any of your company’s management or control exercised in Australia?  If so, you might be Australian tax resident.

On 21 June 2018 the Australian Tax Office (ATO) released a long awaited final ruling on corporate residency. The Ruling (TR 2018/5) turns the ATO’s previous position on its head.  The new position is that any company with its central management and control (CMAC) in Australia will be tax resident in Australia, regardless of where its trading operations are carried out.

Previously the ATO took the view that simply having CMAC in Australia was not sufficient to become tax resident, if its trading operations were carried out in another country.

This will obviously have widespread implications for the many New Zealand companies that are owned or managed from Australia.

The Ruling applies from 15 March 2017 (the date the old ruling was withdrawn), but there is a short transitional period, expected to end on 21 December 2018, for companies who now find they have a CMAC in Australia to rearrange their affairs to move their CMAC out of Australia.  There are a number of criteria to meet for this transitional period to be available.

What does CMAC mean?

The CMAC of a company means the direction and control of the company – the high-level decisions that set the company’s policies, and determine the direction of its operations and the type of transactions it will enter into.  It is different to the day-to-day conduct and management of those decisions.

Decision making means actively making decisions, not passively rubberstamping other people’s decisions or merely carrying them out. The ATO’s starting point is that directors will make these decisions, but this is by no means definitive and the individual facts of each situation will need to be considered. Decision makers must have enough knowledge of the business to be in control of it. The residence of the directors is not important – what matters is where they physically are when they are in control of the company. The ATO has listed a number of factors, some of which are more important than others, that it will consider in determining where the CMAC is. The starting point for examining the CMAC of any business will be the board minutes.

Important factors

Less important factors

Where those who exercise central management and control do so, rather than where they live

Where those who control and direct the company's operations live

Where the governing body of the company meets

Where the company's books are kept

Where the company declares and pays dividends

Where its registered office is located

The nature of the business and whether it dictates where control and management decisions are made in practice

Where the company's register of shareholders is kept

Minutes or other documents recording where high-level decisions are made

Where the shareholder meetings are held

 

Where its shareholders reside

 

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What does the Ruling mean for New Zealand resident companies?

A New Zealand company could be resident in both New Zealand and Australia.

  • You will have to file an income tax return in both Australia and New Zealand
  • You might have to pay income tax in both Australia and New Zealand
  • You may not be able to maintain a New Zealand imputation credit account
  • You may not be able to join a consolidated group with other New Zealand companies
  • You may not be able to undertake a residents restricted amalgamation with other New Zealand companies
  • You may not be able to share losses with other New Zealand companies

How can I stop my company being dual resident?

If you think your company may be or is at risk of being dual resident in both New Zealand and Australia (or Australia and any other country) you should take immediate steps to clarify the position, and then identify the key risk factors that are creating dual residence. You will then need to consider making changes in the way your company is controlled and managed so that it is clearly resident in only one jurisdiction.  If this is not possible, then the steps needed to mitigate the consequences of being dual resident will need to be considered.

What should you do now?

If your company is owned by Australian residents or managed to any extent from Australia, you should consider whether your CMAC is in Australia.  Consider the criteria above and for more detail read the documents in the useful links section.

Useful Links

Deloitte Australia analysis

TR 2017/D2

ATO Practical Guidance

ATO Comments on Consultation

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