Update to ATO PCG 2018/9 – aligning corporate tax residence disclosures in tax returns to CEDS

The Australian Tax Office (‘ATO’) on 11 June 2025 updated its Practical Compliance Guide PCG 2018/9 on corporate tax residence to reflect key changes including aligning tax compliance residence disclosures to the Consolidated Entity Disclosure Statement (‘CEDS’) for financial reporting purposes.

The ATO changes to PCG 2018/9 included:

• Alignment with CEDS reporting: Companies must now ensure consistency between their tax residency disclosures in the Consolidated Entity Disclosure Statement (CEDS) and their tax returns. Inconsistencies may trigger a higher compliance risk rating.
• Clarification of low-risk criteria: A company will not be considered ‘low risk’ under the PCG if it self-assesses as a non-resident but reports as a resident in its CEDS. This applies to financial years starting on or after 1 July 2024.
• Focus on substance over form: The ATO reiterates that the location of board meetings alone is insufficient. The actual place where strategic decisions are made remains central to determining residency.

As taxpayers may recall, the ATO issued PCG 2018/9 and its companion tax ruling TR 2018/5 following the High Court decision in Bywater v FCT (2016) 339 ALR 39.

The Bywater decision overturned decades of established law to hold that a foreign incorporated company was deemed to be carrying on business in Australia because it also had its central management and control located in Australia. 

The outcome of the Bywater decision, and the ATO’s responses, is that foreign incorporated companies that have no substantial business activities in Australia may be treated as Australian tax residents. This is a much lower threshold than was previously the case following the previously long-standing High Court decision in Malayan Shipping Company Ltd. v FCT (1946) 71 CLR 156 and as reflected in the ATO’s previous TR 2004/15 on the matter.

While Grant Thornton welcomes the ATO’s efforts to enforce the Bywater CMC test with greater transparency and consistency, the outcome is that taxpayers – especially multinationals – have had to incur further compliance burdens in an area of the law that for many years pre-Bywater, was relatively simple to apply. Such additional efforts now include: 

• Reviewing the ATO’s PCG 2018/9 closely.
• Review governance structures and decision-making processes to mitigate tax residence risk.
• Document where CMC is exercised e.g. location of board meetings, location of directors, minutes of decision making.
• Align tax return disclosures with CEDS financial reporting.
• Consider more closely the interaction of foreign tax law with Australian tax law, including applicable Double Tax Agreements, to deal with issues of potential dual tax residence.

Grant Thornton previously discussed the introduction in 2024 of the CEDS requirements here.  

We also previously raised our observations as to the complexities from the Bywater decision and the ATO response in our previous client alert and further called for a legislative ‘fix’ in 2023 to clarify the matter and return the interpretation of the law to the pre-Bywater position. 

However, the legislative fix has not (yet) occurred, and we would remind taxpayers to continually monitor the ATO’s views and to review and document the tax status of their foreign incorporated subsidiaries.

Please contact your Grant Thornton tax advisor if you require our assistance on this matter.

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