COVID-19 border closures and the impact on Australian corporate tax residency

Corporate residency test

For income tax purposes, a company is a resident of Australia if:

  • it is incorporated in Australia; or
  • although not incorporated in Australia, it carries on business in Australia and has either:
    • its central management and control in Australia; or
    • its voting power controlled by shareholders who are residents of Australia.

Putting the voting power part of the test to one side, a company that was not incorporated in Australia but carries on business in Australia will be deemed to be a resident if its central management and control is in Australia.

Central management and control

The Commissioner has shared his views on central management and control in Taxation Ruling TR 2018/5. TR 2018/5 explains that central management and control refers to the control and direction of a company’s operations. It does not refer to the physical location in which the control and direction of a company is located.

The key element is the ‘high-level decisions that set the company’s general policies and determine the direction of its operations and the type of transactions it will enter’. Such high-level decisions stand in contrast to the day-to-day conduct and management, which are not ordinarily relevant to central management and control. It is important to focus on where the key decisions are made and not where those decisions are implemented.

Examples of exercising central management and control include:

  • setting investment and operational policy including:
    • setting the policy on disposal of trading stock, and/or the use and development of capital assets
    • deciding to buy and sell significant assets of the company
  • appointing company officers and agents, and granting them power to carry on the company’s business (and the revocation of such appointments and powers)
  • overseeing and controlling those appointed to carry out the day-to-day business of the company, and
  • matters of finance, including determining how profits are used and the declaration of dividends.

The nature of the decisions that constitute acts of central management and control will necessarily depend on the nature of the business. To emphasise this point, TR 2018/5 compares a (special purpose) company set up to buy a single asset with a company that mines and sells diamonds. In the case of the special purpose company, the decisions to buy and sell the single asset will be the only activities relevant to its central management and control. On the other hand, for the mining company, the decision to buy and sell a single asset will probably not be relevant to the issue of central management and control.

Issue – COVID-19 response forces decisions to be made in Australia

A key consequence of being an Australian tax resident is that the company’s taxable income will include income from all sources regardless of whether that income has a connection to Australia.

As a result of the border closures and the inability to exit, Australian individual residents that ordinarily travel to other countries to make the strategic high-level decisions (on behalf of a company) may be required to make those decisions in Australia. If those strategic decisions cannot be indefinitely postponed, the company’s central management and control may be deemed to be in Australia.

ATO concessional approach – non-binding guidance

In its non-legally binding guidance,[1] the ATO has advised as follows:

Central management and control

If the only reason for holding board meetings in Australia or directors attending board meetings from Australia is because of the effects of COVID-19, then we will not apply compliance resources to determine if your central management and control is in Australia.

COVID-19 has resulted in overseas travel bans and restrictions and a high degree of uncertainty around international travel. You may be concerned about these effects on your corporate residency status because of a need to change locations of board meetings or where directors attend them from.

Some boards of foreign-incorporated companies that are not Australian tax residents may temporarily suspend their normal pattern of board meetings because either:

    • there are overseas travel bans or restrictions
    • the board has made the decision to halt international travel because of COVID-19.

If these companies instead hold board meetings in Australia or directors attend board meetings from Australia, this alone will not (in the absence of other changes in the company’s circumstances) alter the company’s residency status for Australian tax purposes.

We are currently reviewing the evolving effects on business and will issue further updates to this guidance in the coming months.

Moreover, irrespective of COVID-19, paragraph 79 of PCG 2018/9 provides that an ‘occasional or one-off exercise of high-level decision making…does not cause it to be in that place…’ It seems reasonable for the Commissioner to apply a more liberal interpretation to ‘occasional’ in the context of COVID-19.


The ATO will not be examining the issue of central management and control where it suspects that a company’s central management and control is in Australia only as a result of COVID-19.

This article is not intended to go into the detail of what level of comfort a taxpayer can or should take from this non-binding ATO-concession and what is meant by not dedicating ‘compliance resources’ other than to say that in Australia, outside of the legislated ruling scheme, there does not seem to be an ability to estop a government body (including the Commissioner) from applying the law.[2]

Taking the ATO at its word should mean that if COVID-19 related travel restrictions have caused a company’s strategic decisions to be made in Australia, such that its central management and control is technically deemed to be in Australia, the Commissioner will not treat that company’s residency as having been altered.

It will be important to re-establish the company’s ordinary central management and control (overseas) as soon as circumstances permit to demonstrate that the company’s approach has not changed permanently (and has not persisted longer than necessary), but has reverted to ‘normal’ once borders and related restrictions permit.

[1] The Commissioner has advised that: Provided you follow this Guideline in good faith, the Commissioner will administer the law in accordance with this approach.

[2] FCT v Wade (1951) 84 CLR 105; Bellinz Pty Limited & Ors v FCT 98 ATC 4634.


If you have any questions about this article, please get in touch with an author or any member of our Tax team(s).


This information and the contents of this publication, current as at the date of publication, is general in nature to offer assistance to Cornwalls’ clients, prospective clients and stakeholders, and is for reference purposes only. It does not constitute legal or financial advice. If you are concerned about any topic covered, we recommend that you seek your own specific legal and financial advice before taking any action.