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Ruling
Subject: Company residence
Question and answer
Is Company A an Australian resident for tax purposes?
Yes
This ruling applies for the following period
Period ended 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts and circumstances
Company A is incorporated outside Australia.
Company A is the sole shareholder of an Australian incorporated company, Company B
Company A's operations solely relate to the management of Company B and other group entities/subsidiaries of Company B.
Company A's income is derived solely from the investment decisions it makes.
The head office of Company B is in Australia, it is planned that this head office will double as the head office for Company A.
Company A currently has two directors, both are Australian residents for tax and migration purposes.
Company A will have a board of directors comprising of X members, 2/3 of which will be Australian resident directors, the remainder will be non Australian residents.
Currently, all directors' meetings of Company A are held in Australia and will continue to be held in Australia once the remaining directors are appointed. Non-resident directors will join the meetings via video conferencing facilities.
Relevant legislative provisions
Income Tax Assessment Act 1936
Subsection 6(1)
Reasons for decision
There are three tests to determine residency for the purposes of income tax law: refer to subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936).
A company will be a resident if:
· it is incorporated in Australia, or
· if the company is not incorporated in Australia, but it is either:
· carrying on a business in Australia and its central management and control is in Australia, or
· carrying on a business in Australia and its voting power is controlled by shareholders who are Australian residents.
A company will only need to satisfy one of the tests to be a resident of Australia for tax purposes.
Company A is not incorporated in Australia, so it is necessary to consider if Company A is carrying on a business in Australia with further consideration to whether that business' central control and management is in Australia; or whether the voting power is controlled by shareholders who are Australian residents.
Carries on a business in Australia
The question of where business is carried on is one of fact requires consideration of where the activities of the company are carried on and is dependent on the facts and circumstances of a case. A company whose income earning outcomes are largely dependent on the investment decision made in respect of its assets, carries on its business where these decisions are made.
Company A is a holding company and sole shareholder of Company B. Company A's sole asset is Company B which is an Australian incorporated company.
You indicate that Company A currently holds all directors' meetings in Australia.
In the future, non-resident directors will be appointed to the board, the non-resident directors will join the board meetings via video conferencing facilities. The majority of the directors (stated as two-thirds) are resident directors.
As the income earning outcomes of Company A are decided by a majority board of directors in Australia, Company A is therefore carrying on a business in Australia.
Location of central management and control
Currently both board members of Company A are based in Australia. In the future board meetings are to be conducted via electronic facilities. There is a focus on where the participants contributing to high level decisions are based when determining the location of central management and control. The fact that a majority of board members are located in Australia when participating in the meetings satisfies central management and control is in Australia (paragraph 50 Taxation Ruling TR 2004/15).
As Company A is located in Australia and it is carrying on business in Australia, it is a resident of Australia under the second statutory test.