Australia: corporate tax guide

What the tax system covers

Australian-resident companies are generally subject to tax on worldwide income, with foreign-source exemptions and credits requiring their own tests. Incorporation, central management and control, and statutory ownership connections can be relevant to residence.

When a company becomes tax resident

ATO TR 2018/5 addresses the central-management-and-control test after the Bywater litigation. High-level decisions and who really makes them are important. The ATO ruling distinguishes its current interpretation from announced proposals; an unlegislated proposal should not be presented as the rule. Foreign board meetings are not conclusive when decisions are made elsewhere.

Rates and the tax base

30%; 25% qualifying base-rate entities. The lower rate depends on the statutory base-rate-entity tests, including aggregated turnover and passive-income composition. It is not available merely because a company has few employees or a small current profit.

Outbound dividends, interest and royalties

Dividends: 30% unfranked; 0% franked. The domestic rate applies to the unfranked component. Franking and eligible conduit foreign income can remove withholding on the relevant portion; treaty relief is separate.

Interest: 10%. Domestic interest withholding rate before treaty and statutory exemptions. A covered Australian-source payment to a nonresident must be distinguished from income attributable to an Australian business establishment.

Royalties: 30%. Domestic gross royalty withholding before treaty relief. Determine whether the consideration is for licensed rights or for something else under the contract; mixed payments may require allocation.

Company residence is not the same as CFC attribution

For a foreign-incorporated company, central management and control concerns the real high-level decisions directing the business. ATO TR2018/5 follows the substance of those decisions, including who actually makes them. A foreign board that simply implements instructions issued from Australia may not establish the intended outcome. Minutes should record genuine deliberation and authority rather than document a prearranged conclusion.

If the company is nonresident, CFC rules can still matter. The strict control test includes at least 50% control held by five or fewer qualifying Australian entities and associates. There are also assumed-controller and de facto control tests. Whether the particular shareholder must include attributed income is a further question, with attribution interests, active-income rules and other conditions.

Keep ongoing obligations in view

Australian property, employment-related payments, businesses, trusts and superannuation need separate treatment. Moving an owner can also change a company’s management and control. Assess withholding and the effect on future disposals, not just the final resident-year return. The ATO materials cited here include older guides; the current legislation and applicable year must be checked for the implemented plan.

An international structure must account for Australian residence

An Australian-resident owner can remain taxable on foreign income even when a company and bank account are overseas. The first question is whether the owner stays resident, followed by whether the foreign company is genuinely nonresident and whether CFC attribution applies. Those are separate tests. A structure that ignores one can create overlapping tax and reporting instead of the expected saving.

For an outbound business, identify the functions genuinely performed overseas: management, product development, sales, staff and risks. The Australian business should be compensated appropriately for what it continues to do. A foreign company that invoices customers while all high-level decisions remain with its Australian owner needs a careful central-management-and-control analysis. Incorporation is an implementation step after that work, not evidence that the tax answer has already been settled.

Departure requires an asset-level calculation and governance plan

Ceasing Australian tax residence can trigger CGT event I1 for relevant assets outside taxable Australian property. An individual may choose to disregard the departure gains and losses, but the choice can keep the affected assets within the Australian CGT net for later events. It is therefore a trade-off about timing and future exposure, not simply a tax cancellation. Temporary-resident treatment and treaties can alter the analysis.

A departure plan should identify each asset’s owner, cost, value, tax category and proposed disposal date. It should also state what happens to company management, trusts, retained property and ongoing Australian-source income. The receiving country may have a different starting value or tax timing, creating a mismatch. Offshore Capitalist can coordinate the cross-border design and implementation, including appropriate independent valuation and local advice where the work requires it.

Foreign companies and income attribution

CFC control and attribution tests can apply to resident individuals and companies, subject to detailed exemptions.

Departure, migration and continuing obligations

CGT event I1 can apply on ceasing residence, subject to asset/status exceptions. An individual deferral choice can preserve later Australian CGT exposure; companies have a separate position.