Australia: tax, residence and foreign companies

Resident individuals and foreign companies

CFC rules can attribute income from controlled foreign companies before a cash dividend reaches an Australian owner. Control, associate interests and attribution are technical tests, not simply a majority shareholding question. Active-income exemptions and other conditions must be checked separately. A foreign company may also be Australian resident, which is a different route to taxation.

Actual management is the central issue

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.

Arrival and departure can change gains

CGT event I1 concerns an individual or company ceasing Australian residence. Asset categories, taxable Australian property and individual choices require detailed analysis. Temporary residents have different provisions. Retained Australian real estate and the main-residence exemption can remain significant after departure. A useful comparison therefore models existing assets and future income, rather than just a new country’s headline tax rate.

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.

Temporary-resident status requires its own eligibility review

The tax concept of a temporary resident is not simply any foreigner on a temporary visa. The statutory conditions and spouse-related circumstances matter. Where it applies, much foreign income and gains outside taxable Australian property can receive different treatment, while employment and services require their own analysis. A person can be an Australian tax resident and also qualify for these special rules.

Record the start and end of the status and review any change in visa or family circumstances. When temporary status ends while ordinary Australian residence continues, market-value acquisition rules can affect relevant assets. Obtain valuations at the event, and do not assume that a later accountant can recover a reliable business value from a bank balance.

Treat departure CGT as a decision with future consequences

For relevant assets, CGT event I1 can arise when residence ends without any cash sale. An individual’s choice to disregard the resulting gains and losses can cause the assets to remain taxable Australian property until a later CGT event or resumed residence. Future appreciation and the destination’s tax rules therefore belong in the comparison. The choice should not be described as a permanent exemption.

Prepare an asset schedule separating taxable Australian property, other investments, business interests and assets with special rules. Check capital losses, available concessions, temporary-resident status and the applicable treaty. Personal departure does not automatically migrate an Australian company or change trust treatment. The final plan should distinguish the individual’s calculation, company-level consequences and continuing source-country taxation.

How Offshore Capitalist can help

Share your current residence, nationality, business activities and intended changes through the inquiry form or WhatsApp. We can assess the cross-border issues, explain the work required and coordinate the agreed implementation. For this jurisdiction, local regulated work and government decisions remain with the relevant qualified providers and authorities. We confirm scope and fees before starting.