0
Become a Member
Membership
Education
Events
Resources
Tax Knowledge Exchange
About us
Contact us
Federal Budget

Certainty on corporate taxation well overdue

Published on: 19 Mar 2025

Want corporate tax compliance and foreign investment? Start with clear tax legislation, says new Head of Tax & Legal.

SYDNEY, 19 March 2025: Unclear corporate tax residency rules are giving rise to high compliance costs and complex corporate governance practices, and need to be addressed sooner rather than later if government and regulators expect both compliance with tax obligations and future investment in Australia from foreign corporates.

With the election just around the corner, and ahead of the Federal Budget 2025–26, Julie Abdalla, Head of Tax & Legal at The Tax Institute, says that corporate taxpayers need certainty in their taxation dealings, and this is well overdue when it comes to the corporate tax residency rules.

Corporate tax residency

As part of the Federal Budget 2020–21, the Government sought to amend the law so that a company incorporated offshore will be treated as an Australian tax resident if it has a ‘significant economic connection to Australia’. This measure was proposed in response to the ATO’s interpretation following the High Court’s 2016 decision in Bywater Investments Ltd v Federal Commissioner of Taxation [2016] HCA 45 which departed from the long-held position on the definition of a corporate tax resident. 

Although industry has welcomed this proposed clarification, a lack of action on this matter since its announcement is frustrating and leaves corporates having to put in place costly compliance and governance practices, without sufficient certainty.

Abdalla said, ‘We need clarification in the law to dispel any confusion that taxpayers are facing when determining the central management and control aspects of a corporation. The absence of clarification is costly for taxpayers and can hinder good corporate governance. A simple clarification by way of a technical amendment to the law will provide corporate taxpayers a clear indication of their residency and corresponding tax liabilities.’ 

Abdalla explained, ‘Implementation of the amendments would provide certainty to taxpayers and has a bigger picture implication in terms of supporting foreign investment in Australia. Consultation on the proposed changes should be progressed without further delay.’

‘If we want good corporate governance and we want foreign investment into Australia, the first step is making it clear to corporates where they stand and simplifying their obligations.’

Abdalla added that, ‘The former government also floated the idea of expanding the definition to apply to trusts and corporate limited partnerships, but this too remains unlegislated.’

She also noted that, ‘any legislative changes should be aligned with broader tax reform objectives to avoid making piecemeal changes directed to an isolated purpose.’

ENDS

Tagged
  • Federal Budget
Other media releases
  • ATO casts the NALI net too wide says Joint Bodies
  • Tax reform heavyweights weigh in on the path to lasting change in our system
  • The Tax Institute COVID-19 response