Ask Ban Tacs Question
I live in Australia and am a tax resident of Australia (having migrated here from New Zealand in 2012). I own a NZ-incorporated company that invests in rental property in the NZ market only. It currently owns a single rental property that is managed by a NZ-based property manager.
Questions:
1. Can you confirm that given these circumstances, the company would not be deemed an Australian tax resident by the ATO, since the company is only conducting business in New Zealand?
2. If the company purchases more NZ rental properties in the future, resulting in more work on my part as director to remotely manage the company from Australia (although continuing to use NZ property managers for day-to-day management issues), would there come a point where the ATO deems the company to be tax resident in Australia? Is there any case law and commentary which has established a precedent on this?
Answer
First I need to confirm that you have moved here permanently. If you are a temporary resident ie on a 444 or 457 visa then Australia has no right to touch your overseas assets.
The trouble starts when you become a permanent resident, then Australia has a right to tax your worldwide income and the NZ company may now be considered a resident of Australia for tax purposes. The key ruling on this matter is TR 2004/15 http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR200415/NAT/ATO/00001 in particular paragraph 11 to quote:
7. However, there are situations where the nature of the business or the level of control over the business requires the exercise of CM&C at the place where the business is carried on. Where a company’s business is management of its investment assets and it undertakes only minor operational activities, the factors determining where a company is carrying on a business may be similar to those determining where it is exercising CM&C. In these situations the location of CM&C is indicative of where the company carries on business and vice versa.
11. On the other hand, a company whose income earning outcomes are largely dependent on the investment decisions made in respect of its assets, carries on its business where these decisions are made. This is often where its CM&C is located.
CM&C means central management and control. Which is you!
The ruling does discuss the possibility of that control being delegated to someone in NZ but does not give any examples where the investment is real estate. In the case of shares control could be in NZ if the broker who actually decides what shares to buy is in NZ. Refer example 4. You might have a property manager but you still decide what properties to buy. Have a thorough read of the ruling and see if you can find anything in your circumstances that may allow you to escape this but from what you have told me if you are now a resident of Australia for tax purposes then your company is also and it should be lodging Australian tax returns. It will probably need to also lodge a tax return in NZ and Australia should give you credit for any tax paid in NZ
In short I think you have already crossed the line.
