3. Changes affecting companies

3.2 Clarifying the corporate residency test

The corporate residency rules are fundamental to determining a company’s Australian income tax liability. The Government will amend the law to provide that a company that is incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This test will be satisfied where both the company’s core commercial activities are undertaken in Australia and its central management and control is in Australia.

This change will ensure the principles governing the residency of foreign incorporated companies will reflect the position prior to the 2016 court decision in Bywater Investments Limited & Ors v. FCT; Hua Wang Bank Berhad v FCT [2016] HCA 45 (after this decision the ATO withdrew Taxation Ruling (‘TR’) 2004/15 and later released TR 2018/5, incorporating the High Court’s residency test).

The measure will have effect from the first income year after the date of Royal Assent of the enabling legislation, but taxpayers will have the option of applying the new law from 15 March 2017.