Question

if a company  was incorporated in England in 1952, however did not begin operating in Austrlalia until February 2017. The head office continued to be located in England, with the majority of shareholders residing across the England. The board of directors had met monthly at the head office to discuss the objectives and the running of the firm. In February 2017, three key directors transferred to the newly opened office in Austrlia inclluding a handful of the firms architectural and administrative staff. ask when and which part need to be count tax in Australia and why

Answer 1

To tax any income, following points are checked:

1. Whether there is Permanent Establishment* or not, of the entity in which is doing business.
2. Whether any business has been conducted or not.

In the abovesaid question, both the conditions are satisfied as they have established a new office in australia and also started operating business activities since february 2017. Hence it is clear that any income earned by company in Australia shall be taxed in australia.

As per Tax laws and International Agreements, if any other office in is operated by a Resident company, then income earned by such other office shall also be included in calculating income of such company. For eg let say they open a new office in New zealand but that office is also maintained and operated by the Australia office, then any income earned by New zealand office shall also be included in Australia’s office taxable income. However sometimes countries enter in DTAA (Double Tax Avoidance Agreements) with each other to tax the income only once and not double by both countries.

Conclusion

Taxable income

1. Income earned in Australia
2. Income earned by other office which is controlled by Australia office (with regards to DTAA entered between the countries)

*permanent establishment: it means any place of doing business. It may be an office or room. Some countries have relaxed this term by inclunding any personnel which comes to a country and reside in hotel and conducts business from there.

Key point: income shall be taxed for financial Year 2016:2017 ( Assessment Year 2017:18)