The Canada-Australian Double Taxation Treaty is an agreement between Canada and Australia that allows taxpayers to claim foreign tax credits in their home country for taxes paid abroad, ensuring the same income is not taxed twice and includes mechanisms for resolving tax disputes between the two countries’ tax authorities.
Residency and Permanent Establishment
The treaty defines which entity is considered a resident of Canada or Australia. This is critical because tax obligations differ for residents and non-residents. The concept of permanent establishment (PE) is used to determine if a business has a taxable presence in the other country. For example, if your Canadian business operates a branch in Australia that qualifies as a PE, the profits attributable to that PE can be taxed in Australia.
Business profits are generally taxable only in the country where the enterprise is resident unless the profits are attributable to a PE in the other country. This ensures that if your Canadian company operates through a subsidiary in Australia, only the profits attributable to the Australia operations are taxed in Australia.
Operating an Australian Subsidiary
If your Canadian business has a subsidiary that earns income in Australia, Canada allows you to claim credits for taxes paid in Australia. This means that if your Australian subsidiary’s income is taxed in Australia, you can reduce your Canadian tax liability by the amount of Australian tax already paid, subject to the treaty limits.
Conclusion
The Canada–Australia Double Taxation Treaty is a powerful tool for a Canadian business with cross-border operations in Australia, ensuring that income earned by a subsidiary in Australia is not subject to double taxation. It offers reduced withholding tax rates, clear allocation of taxing rights, and the ability to claim foreign tax credits, all of which help streamline your tax obligations.
About MCLP
MCLP has been operating in Sydney and Melbourne for more than a decade, and most of our lawyers hold business administration degrees ensuring you are receiving both practical and legal solutions for your expansion to Australia. We offer comprehensive legal services for Canadian businesses looking to establish operations in Australia. Our team understands both Canadian and Australian business landscapes, making expansion seamless. Our Services Include:
- Company Formation – We help register your business in Australia, together with virtual office services so you can have a registered office in the financial district of Sydney.
- Local Directorship Services – We can act as your Australian-based director, or assist you in sourcing a local director.
- Legal Compliance & Corporate Governance – We can assist you with all of your legal compliance and corporate governance requirements, including the facilitation of opening a bank account for you.
- Investment & Tax Structuring – We can assist with your corporate structuring, providing you with flexibility and maximising your opportunity to obtain research and development tax incentives and government grants.
- Mergers, Acquisitions, Partnerships and Licencing – We can assist Canadian businesses partner with Australian companies by drafting the legal documentation to give you comfort in having the legal support necessary to protect your rights.
For more information, call our office on +61 2 9262 5495 or email Mr Murdock directly at dmurdock@mclp.com.au for a free consultation, or subscribe to our newsletter by visiting https://mclp.com.au/publications/
For additional information and support:
- Canadian Consulate-General in Sydney
📍 Level 6, Quay West, 111 Harrington Street, Sydney NSW 2000
📞 +61 2 9364 3000 | ✉ sydny@international.gc.ca - Canadian High Commission in Canberra
📍 Commonwealth Avenue, Canberra ACT 2600
📞 +61 2 6270 4000