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Concept of Resident of Australia

17.12. The Income Tax Assessment Act defines resident of Australia, in relation to an individual, so as to adopt the meaning of the word in ordinary usage and to extend that meaning in ways which depend on the domicile of the person concerned or his presence in Australia for more than half the year of income. The definition, even without the extensions, is likely to include persons who are held also to be resident in another country under that country's concept of residence. In the Committee's view, the resulting competition of jurisdiction to tax must be accepted and adjusted where


  ― 255 ―
possible by appropriately drafted provisions of double taxation agreements. The matter of appropriate provisions is explored in paragraph 17.98.

17.13. A resident of Australia in relation to a company is defined by exclusively statutory tests, though one of these—central management and control in Australia—uses the language of judicial decisions that adopts the notion of residence of a company under United Kingdom law. Incorporation in Australia is sufficient to give a company a residence in Australia. So too is central management and control in Australia wherever the company is incorporated. A third test, again sufficient, is carrying on business in Australia and having voting power controlled by shareholders who are residents of Australia.

17.14. Although the definition of resident in relation to a company is wide and may include companies that are resident in another country under that country's law, the Committee does not consider that a narrower definition would be appropriate. In a number of respects, however, the definition might be clarified. The second test requires that a company both has its central management and control in Australia and be carrying on business in this country. As the test has been interpreted, the reference to carrying on business in Australia is unnecessary: central management and control, it is said, involves the carrying on of business. In any event, in the Committee's view it should be enough to give a company a residence in Australia that its central management and control is here.

17.15. The meaning of central management and control calls for clarification. It would bring some tax-haven companies within the jurisdiction of Australian tax if these words were held to be wide enough to include the exercise of control and direction of the company's affairs otherwise than in the formal proceedings of the board-room. It might be thought to be enough to give a residence in Australia that the board of directors habitually responds to intructions formulated in Australia, even though the board meets elsewhere. This wide meaning would, however, increase the likelihood of a company being resident both in Australia and in a foreign country to a degree that might be regarded as unacceptable: many wholly-owned subsidiaries of Australian resident companies, though incorporated in foreign countries and resident there, could become Australian resident companies. On the other hand, the objective of bringing tax-haven companies within the jurisdiction of Australian tax should not be lightly abandoned. Some compromise might be possible which would involve identifying tax-haven countries, either in the Act or, preferably, in regulations, and would provide that a company incorporated in such a country would be deemed to have an Australian residence if effective control and direction of the company's affairs are exercised in Australia, regardless of where the board of directors meets or other formal corporate proceedings take place.

17.16. In Chapter 15 the Committee has proposed that the law should define a concept of an ‘Australian trust’, parallel with the concept of an Australian resident company. The purpose of this concept would be to provide a basis of jurisdiction to tax the accumulating income of the trust. The concept, as there explained, would in part depend on the management and control of the trust being in Australia. Where the trust is administered in a tax-haven country, the same wide meaning of management and control should apply as proposed in relation to companies incorporated in tax-haven countries.

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