An entity that is a resident of Australia is generally assessable on ordinary and statutory income derived from all sources whether in or out of Australia.
In contrast, a non-resident entity is generally assessable only on ordinary and statutory income from Australian sources.
Therefore, it is necessary to determine whether or not an entity is a resident of Australia.
Companies, corporate limited partnerships and trusts must meet different criteria to be considered Australian residents.
A company is a resident of Australia if:
- it is incorporated in Australia, or
- although not incorporated in Australia it carries on business in Australia and has either
- its central management and control in Australia
- its voting power controlled by shareholders who are residents of Australia.
Corporate limited partnerships
A corporate limited partnership will be considered a resident of Australia if either:
- the partnership was formed in Australia
- the partnership either carries on business in Australia, or has its central management and control in Australia.
Generally, trusts are considered Australian residents for an income year if:
- a trustee of the trust estate was a resident at any time during the income year, or
- the central management and control of the trust estate was in Australia at any time during the income year.
For capital gains tax (CGT) purposes, the residency conditions are the same, unless the trust is a unit trust. A unit trust is a resident trust for CGT purposes for an income year if it meets the unit trust residency requirement at any time during the year.
For public trading trust purposes, the conditions for determining whether a unit trust is an Australian resident for an income year are the same as those for unit trusts for CGT purposes.
The unit trust residency requirement has two parts. A condition in both the first and second parts must be met.
Table 1: Unit trust residency requirement
One of these requirements was satisfied:
Any property of the unit trust was situated in Australia.
The trustee of the unit trust carried on a business in Australia.
And also one of these:
The central management and control of the unit trust was in Australia.
One or more Australian residents held more than 50% of the beneficial interests in the income or property of the trust.
Note: The concept of ‘property’ is broad and is not restricted to tangible property. It may include items such as trading stock, cash, and software.
Court decisions regarding the meaning of shareholders
- Patcorp Investments Ltd & Ors v. FC of T 76 ATC 4225
- Voting power Kolotex Hosiery (Australia) Pty Ltd v. FC of T 75 ATC 4028
- Control of the voting power (Mendes v. Commr of Probate Duties (Vic)) mentioned in ATO ID 2011/74 Income Tax: Definition of 'public company': company controlled by a Government – tracing an interest held through a chain of subsidiaries
- ATO Interpretative Decision ATO ID 2002/46 Income Tax: Residency status of a foreign company
- Draft Taxation Ruling TR 2017/D2 Income tax: Foreign Incorporated Companies: Central Management and Control test of residency