Updated Residency Test What It Means for Foreign Companies



In the world of taxes and rules, it's vital to stay informed. The Australian Taxation Office (ATO) has recently made changes to its Practical Compliance Guideline (PCG) 2018/9. This update gives more information about the "central management and control" test, which decides if a foreign-based company is treated as an Australian resident for tax purposes. In this article, we'll break down the key points of the updated PCG 2018/9 and what it means for you.

Central Management and Control Test:

This test is all about where a company's key decisions are made. If a foreign-based company's central management and control are in Australia, it's seen as an Australian resident for tax. The updated PCG 2018/9 helps explain this test better, following the Taxation Ruling TR 2018/5.

Risk Assessment Framework:

One big change is the introduction of a risk assessment framework. It helps companies and advisors understand the risk of being seen as an Australian resident under the central management and control test. The framework sorts companies into three risk zones to help them figure out their tax compliance.

Staying Compliant for Public Groups:

The updated PCG 2018/9 also gives more details about how the ATO will check compliance, especially for big public groups. Some foreign companies might not have a big change in their tax situation whether they're seen as Australian residents or not. This is especially true for public groups with strong rules and good tax practices.

Low-Risk Situations:

The guide talks about situations where there's very little risk of being seen as an Australian resident under the central management and control test. This helps companies know when they're in the clear and don't have to worry about their tax status.

Showing You're Compliant:

The updated guideline also tells you how to prove that you're following the rules for ongoing compliance. This is important for companies that want to keep their Australian tax status.

When It Started:

The updated PCG 2018/9 has been in effect since June 21, 2018. It's important to stay up-to-date with these guidelines to avoid any tax issues.

In a world where taxes and following rules are so important, the ATO's updated Practical Compliance Guideline PCG 2018/9 gives much-needed information for foreign companies and their advisors. Understanding the central management and control test and the new risk assessment framework is key to making good decisions and staying on the right side of the tax rules. Keeping up with the latest guidelines helps companies navigate tax complexities with confidence. You can find the full PCG 2018/9 on the ATO website.

Source: Practical Compliance Guideline PCG 2018/9, ATO website, 1 November, accessed 1 November 2023.

Got questions? Reach out to Tax Ideas Accountants & Advisers at +61 2 83181545 or book an appointment on our live calendar.


Written by Ideas Group

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