I own a company in Canada and have a permanent establishment of the same company in Australia. I understand that there are tax treaties in place to prevent double taxation but am unclear about how this works.
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Answer by Neha Sharma, Hillsdale 2036 NSW
- Tax treaties are agreements between Australia and another country to prevent double taxation and tax evasion where international corporate relations are concerned.
- Your tax liabilities are affected by your residency status. Tax treaties usually stipulate when a dual resident is considered as a resident of one country for tax purposes.
- As a general principle income is taxed in the country in which it is earned. Note however that each country has the right to tax the income under its own domestic laws.
- The law also states that profits of an enterprise in one country may be taxed in another country only if the enterprise has a permanent establishment in the other country through which it carries out its business.
- In your example although your company has a head office in Canada which is a country that Australia has a tax treaty with you can be taxed in Australia because you carry out your business through a permanent establishment in Australia. All profits that are attributable to your permanent establishment in Australia can be taxed here in Australia.