Australia and New Zealand Subsidiaries - Where are you resident?
About the Author:
JOHN CANTIN
Partner and Tax Specialist at KPMG, Wellington
John specialises in corporate tax at a domestic and international sector. John is a member of the Institute of Chartered Accountants' National Tax Advisory Group.
New Zealand and Australia have comparatively broad tests for tax residency under domestic law that include place of incorporation as well as where a company is managed or controlled. This means New Zealand subsidiaries are at risk of being tax resident in Australia and vice versa.
The first step for many companies will be examining how their boards operate, to see if they are dual resident. This is particularly so because of recent changes to Australia’s view on tax residency under its domestic law, which means many companies may now (unexpectedly) find themselves tax resident in both Australia and New Zealand.
If a company finds that it is dual resident, its ability to use the administrative agreement (to self-assess), or request a determination from Inland Revenue or the ATO, needs to be considered.
Importantly, the domestic dual resident rules may still apply (Dual resident companies are unable to offset losses, maintain imputation accounts and will be denied deductions under the hybrid rule).
Hybrid and branch mismatch arrangements are cross-border arrangements that exploit differences in the tax treatment of an instrument, entity or branch under the laws of two or more countries to eliminate, defer or reduce income tax. This is often referred to as double non-taxation.
-www.ird.govt.nz
The key takeaway is that New Zealand companies should be confirming their tax residency (and those of their Australian subsidiaries) under both countries’ rules and taking steps to manage the position.
What have the ATO and Inland Revenue agreed?At its simplest, the administrative agreement allows Australian and New Zealand companies to self-assess their residency for DTA purposes, if they meet certain criteria.
These are summarised in the checklist below. All of the criteria must be met for self-assessment to apply.
|
CRITERIA |
SATISFIED? |
|
Structure |
|
|
• Place of effective management is in one country only. |
Yes / No |
|
Financials |
|
|
• Group turnover less than AUD250m/NZD260m. • Passive income less than 20% of total income. • Intangible assets (excluding goodwill) less than 20% of total assets. |
Yes / No |
|
Compliance activities |
|
|
• There is no compliance activity with the ATO or IR relating to residency in the last five years. • There is no formal dispute with the ATO or IR on any tax matter. |
Yes / No |
|
Continuing obligations |
|
|
• Notify ATO/IR that the administrative agreement has been applied on any new compliance activity (e.g. risk review or audit). • There have been no tax avoidance schemes depending on residency or affecting central management and control, including migration. • There have been no arrangements to conceal ultimate beneficial ownership or to abuse board processes or the board not operating. • There have been no arrangements which would mean DTA benefits would be denied. • There has been no material change to the company’s circumstances that would impact tax residency. |
Yes / No |
|
ATO or IR review |
|
|
• There has been no ATO/IR review of the taxpayer’s residency (especially if the anti-avoidance rules may apply). |
Yes / No |
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