The Australian Taxation Office are a Trading Name of a Business named Ultimate holding for all Company as provided for within the Australian Government Business Register. But is the ATO a Constitutional Trading Corporation for the purposes of s51(xx) of the Constitution?
What is a constitutional corporation?
The Fair Work Act 2009 defines constitutional corporations as 'a corporation to which paragraph 51(xx) of the Constitution applies.
The Australian Constitution defines constitutional corporations as 'Foreign corporations, and trading or financial corporations formed within the limits of the Commonwealth'.
This definition has two limbs that are 'comprehensive alternatives'. This means that constitutional corporations are either 'foreign corporations' or 'trading or financial corporations formed within the limits of the Commonwealth'. Therefore, a foreign corporation does not need to be formed within the limits of the Commonwealth or be a trading or financial corporation to be classified as a constitutional corporation.
Many incorporated employers in the private sector who sell goods or provide services for a fee will easily satisfy the criteria of a trading or financial corporation.
The issue of whether an employer is a constitutional corporation usually arises where the employer is a not-for-profit organisation in industries such as health, education, local government and community services.
Foreign corporations
A foreign corporation is a corporation that has been formed outside of Australia.
A corporation which is formed outside of Australia, which employs an employee to work in its business in Australia, is likely to be a national system employer and therefore fall within the jurisdiction of the Fair Work Commission.
Case example
Trading or financial corporation formed within the limits of the Commonwealth
Trading denotes the activity of, providing for reward, goods or services.
The Commission will consider the nature of a corporation with reference to its activities, rather than the purpose for which it was formed.
It does not matter if trading activities are a corporation's 'dominant' activity or whether they are merely an 'incidental' activity, or entered into in the course of pursuing other activities.
A corporation will be a trading corporation if the trading engaged in is 'a sufficiently significant proportion of its overall activities'.
A corporation can be a trading corporation even if it was not originally formed to trade.
One factor that may be considered is the commercial nature of the activity. When considering the commercial nature of a corporation's activity, the Commission will look at a number of factors, including:
- whether it is involved in a commercial enterprise; that is, business activities carried on with a view to earning revenue
- what proportion of its income the corporation earns from its commercial enterprises
- whether the commercial enterprises are substantial or peripheral,
- whether the activities of the corporation advance the trading interests of its members.
A financial corporation is one 'which borrows and lends or otherwise deals in finance as its principal or characteristic activity...'
The approach taken in deciding whether the activities of a corporation are such that the corporation should be considered to be a financial corporation is the same as the approach taken in deciding whether a corporation is a trading corporation.
So who exactly are the Ultimate holding for all Company and who do they represent?
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What is an ultimate Holding Company?
An ultimate holding company structure is a company that is formed with the specific purpose of acquiring and holding shares in other subsidiary companies. The holding company has control over these other subsidiaries. While the subsidiary companies are responsible for running day-to-day operations, the ultimate holding company manages the subsidiaries and holds all the assets.
The same board of directors commonly manage both the holding company and its subsidiary companies. A centralised management structure promotes overall corporate governance and the business performance of the group as a whole. This control is the main element of an ultimate holding company. Therefore, the ultimate holding company cannot be a subsidiary of another company. This article examines an ultimate holding company structure, its benefits and reporting requirements.
Subsidiary Companies
A subsidiary is a company under the control of another company. It runs the day-to-day operations and may incur liability. Under The Corporations Act 2001 (Cth), a company is a subsidiary if the other company:
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controls the composition of its board of directors;
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can cast, or control the casting of, more than 50% of the maximum votes at a shareholders meeting; or
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holds more than 50% of the issued share capital of the company.
Ultimate Holding Company Structure
Many business owners opt to incorporate holding companies to structure their business most effectively. An ultimate holding company is typically part of a tiered business structure. The ultimate holding company is always at the top level, and the subsidiary companies are underneath it.
Additionally, the ultimate holding company owns the shares in the subsidiary companies, while individual shareholders hold the shares in the ultimate holding company. Also, the ultimate holding company usually has no involvement in the day-to-day activities of the subsidiaries.
Benefits of an Ultimate Holding Company
Having an ultimate holding company structure comes with many benefits. A holding company holds business assets and licenses those assets to its subsidiary companies. Creating subsidiary companies and a holding company can compartmentalise business structures and provide risk protection benefits.
Additionally, growing businesses or businesses in the process of scaling, often set up holding companies to streamline operations. Separating assets (which the holding company holds) from business operations and liabilities (which the subsidiary company holds) ensures that business assets are well protected.
Holding companies typically are unable to be held liable for or held accountable for subsidiary companies’ acts.
Thus, holding companies often hold valuable assets on behalf of a subsidiary company as a separate entity. This greatly reduces the risk of losing assets if a subsidiary company becomes insolvent or suffers from underperformance.
Alternatively, it is possible to spread the assets of the business across subsidiaries. Separating the assets and liabilities within the subsidiaries is important in the event of a claim against the business.
For example, a person may make a complaint against your business. However, they can only receive benefits from the subsidiary they were dealing with rather than your entire group of companies. Therefore, separating business assets by spreading them out across the various subsidiary companies ensures that assets receive better protection.
Further, by incorporating a holding company, it is also possible to reduce the amount of tax that the holding company and subsidiary companies are jointly liable for. As an example, you can potentially structure your group to form a tax-sharing strategy.
Reporting Requirements
The Australian Securities and Investments Commission (ASIC) requires you to report your ultimate holding company at the time of formation and disclose its name on company records. However, for reporting purposes, the ultimate holding company and the subsidiaries are one entity. Consequently, you must make returns and statements to ASIC on behalf of the group as a whole.
If this entity is a body corporate and not a Body Politic does it have the legal status to collect an Australian Tax?
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