This year’s Federal Budget, brought down on 11 May 2021, has provided some changes to tax measures that could affect our foreign clients. In particular, the following areas should be noted in preparation for the change in law once legislation passes both Houses of Parliament.
Tax Residency of Trusts and Corporate Limited Partnerships
In the October 2020 Budget, an amendment was proposed to the corporate residency test, which would treat a company that is incorporated offshore as an Australian resident for tax purposes if it has a “significant economic connection to Australia”. This requires that:
- Core commercial activities are undertaken in Australia; and
- Central management and control in Australia.
The Government has now announced that it will consult on broadening these amendments to extend to trusts and corporate limited partnerships.
New individual residency test
In our international newsletter of September 2018, we discussed a Board of Taxation review of the tax residency rules for individuals. The Government has now announced that it will adopt the Board’s recommendations.
Once implemented, it is expected that the new simplified individual residence test will comprise:
- A bright line test (183+ days presence), and
- A secondary test taking into account factors such as the individuals rights to permanently reside, Australian accommodation, Australian family and Australian economic connections.
Introduction of ATO early engagement service
The Government has announced that the Australian Taxation Office (ATO) will introduce a new early engagement service to encourage and support new foreign business investments into Australia. The aim of the service is to provide foreign investors some assurance and support in relation to Australian tax law and obligations.
It is intended that the service will integrate with tax aspects of the FIRB approval process so that information is not required to be provided more than once. It is also intended that the early engagement service will incorporate expedited private binding rulings and advance pricing agreements.
The ATO anticipate the service being available to eligible investors from 1 July 2021.
If you have any queries in relation to the budget measures mentioned above, please contact your client manager.
Correct as of 26 May 2021
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