Controlled Foreign Company (CFC) Rules

Australia’s CFC rules are designed to prevent Australian residents from deferring or avoiding tax by shifting income to offshore entities they control in low-tax jurisdictions. These rules form part of the anti-deferral provisions in the Australian international tax system.

A CFC is typically a foreign company controlled by one or more Australian residents. If certain conditions are met, the CFC’s income—especially “tainted income” such as passive interest, dividends, or royalties—may be attributed back to the Australian controllers and taxed in Australia, even if no money is distributed.

Common Issues with CFCs:

  • Identifying whether a foreign company qualifies as a CFC under Australian law

  • Determining if any of the attribution rules apply

  • Calculating and attributing tainted income

  • Reporting and compliance obligations

  • ATO scrutiny of offshore structures

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Exit Taxation

Exit taxation applies when an individual or company ceases to be an Australian tax resident or transfers assets out of Australia. This ensures that capital gains tax (CGT) is paid on accrued gains before assets leave the Australian tax system.

Under Division 104 of the Income Tax Assessment Act 1997, a taxpayer may be treated as if they had disposed of their assets at market value at the time of departure—triggering a capital gain event, even though the assets haven’t been sold.

Exit Taxation May Apply To:

  • Individuals permanently relocating overseas

  • Australian businesses moving operations or IP offshore

  • Trusts or companies changing tax residency

  • Transfers of shares, real property, or intellectual property out of Australia

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How Christopher Garlick Can Assist

With extensive experience in statutory interpretation and international tax disputes, Christopher John Garlick provides expert legal advice on:

  • Assessing CFC risk and attribution exposure

  • Designing and reviewing offshore structures for compliance

  • Representing clients during ATO audits or investigations

  • Advising individuals and businesses on exit tax obligations and planning strategies

  • Dispute resolution with the ATO in relation to residency and asset valuation

Key Risks Without Proper Advice

  • Unintended CFC attribution resulting in unexpected tax bills

  • Harsh CGT consequences when leaving Australia

  • Penalties and interest from failure to disclose foreign interests

  • Complex compliance obligations under foreign income and assets reporting rules

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Plan Ahead with Confidence

If you control a foreign company, are planning to relocate overseas, or are restructuring your international assets, seek legal advice early.

Contact Christopher Garlick to ensure you’re compliant and protected under Australia’s CFC and exit taxation laws.

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