Edited version of private ruling

Authorisation Number: 1011764042569

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Ruling

Subject: Residency - dividend withholding tax - asset transfer - retirement income.

Issue 1

Question

Will you cease to be a resident of Australia, as defined in subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936), from the particular date in the recent year?

Answer

Yes.

This ruling applies for the following period:

1 July 2010 to 30 June 2016.

The scheme commenced in:

1 July 2010

Issue 2

Question

Will a dividend paid to you from A Pty Ltd, after you become a non-resident of Australia, be subject to Dividend Withholding Tax if:

(a) the dividend is franked?

(b) the dividend is unfranked and the dividend relates to Australian sourced income?

(c) the dividend is unfranked and is in connection with conduit foreign income received by B Ltd?

Answer

(a) No

(b) Yes

(c) No, as long as the distribution by A Pty Ltd has conduit foreign income (CFI), as calculated under the provisions of sections 802-30 to 802-55 of the Income Tax Assessment Act 1997 (ITAA 1997) and, has been declared to be CFI in its distribution statement.

This ruling applies for the following period:

1 July 2010 to 30 June 2016.

The scheme commenced in:

1 July 2010

Issue 3

Question

Will a transfer of assets of the Trust to you, after you become a non resident of Australia, attract an Australian taxation liability?

Answer

No.

This ruling applies for the following period:

1 July 2010 to 30 June 2016

The scheme commenced in:

1 July 2010

Issue 4

Question

Will a pension or lump sum payment received by you from a foreign superannuation fund, after you become a non resident of Australia and after you retire, be treated as assessable income for Australian income tax purposes?

Answer

No.

This ruling applies for the following period:

1 July 2010 to 30 June 2016

The scheme commenced in:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You were a resident of a foreign country for a number of years. During this time you founded a funds management business, B Pty Ltd (B), in that foreign country. You also had money invested in a superannuation fund during this time. Immediately prior to moving to Australia, a new superannuation fund was established by your employer, B, and the accumulated value of the previous superannuation fund was rolled over into the new fund, Foreign Super Fund (FSF).

When you moved to Australia, B established a smaller business in Australia, BB Australia Pty Ltd (BB). You have continued to be involved with B.

For family and personal reasons, you departed Australia in the recent year to permanently relocate and reside in the foreign country. You own a family property in that country. Your house in Australia has been leased out for a number of years. You have sold your vehicles and other assets are up for sale. You do not have any intention of returning to Australia except for the occasional short visit to see family.

You have:

· cancelled your Australian Credit cards,

· notified the Electoral Commission that you are no longer living in Australia,

· advised Medicare that you are a non resident, and

· obtained private health insurance in the foreign country.

You have 100% shareholding in D Pty Ltd an Australian company which in turn owns a 55% shareholding in E Ltd, a foreign company.

You control the B Family Trust which owns 55% of BB. BB manages the X Independent Fund (X).

The FSF is a non resident superannuation fund located in a foreign country. You are currently XX years of age and, on retirement would be entitled to receive benefits from the fund.

Following an audit of your tax affairs, a Deed of Settlement in 200X was reached with the Commissioner which resulted in amended income tax assessments issuing to you. It was determined that you were the beneficial owner of units in the Y Development Fund (Y). Following the settlement you redeemed the units in Y and settled a new trust, the Trust (a non resident) with investments in the X Independent Fund.

A private ruling was issued to you in 200X in which it was determined that:

· The units acquired by F in Y were beneficially owned by you under the provisions of the Foreign Investment Fund rules.

· Any transfer of the legal control of F to another trust and then to a subsequent second trust, would not alter the beneficial ownership of the Y units by you. There were no Australian tax consequences of those transfers.

A second private ruling issued to you in 200X in which it was determined that:

· The replacement of F by Asset Ltd (AL) would not change the beneficial ownership of the Y units. That is, you would continue to be the beneficial owner of those units.

· The replacement of F by AL, of itself, did not create any tax liabilities for you or any other entity.

· A redemption of the units in Y was effective in 200X.

· You would be the beneficial owner of the funds acquired from the redemption of the units in Y.

· The Trust invested approximately $10,000,000 in units in the X and retained the $2,000,000 balance remaining from the redemption proceeds, in cash.

· The units in the X will be beneficially owned by you. Accordingly any dividend or interest income distributions from X are considered to be derived by you.

In a letter from your agent, it was requested that the question relating to two resident superannuation funds, was not to be part of the private ruling application.

Relevant legislative provisions

Income Tax Assessment Act 1936 Subsection 6(1)

Income Tax Assessment Act 1936 Subsection 128B(1)

Income Tax Assessment Act 1936 Section 128B

Income Tax Assessment Act 1936 Subsection 128B(4)

Income Tax Assessment Act 1936 Paragraph 128B(3)(ga)

Income Tax Assessment Act 1936 Sections 160AQF & 160AQFA

Income Tax Assessment Act 1997 Section 802-15

Income Tax Assessment Act 1997 Section 104-160

Income Tax Assessment Act 1997 Section 104-165

Income Tax Assessment Act 1997 Division 305

Income Tax Assessment Act 1997 Section 305-70

Income Tax Assessment Act 1997 Subsection 305-70(1)

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 995-1(1)

Reasons for decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Issue 1

Summary

You became a non-resident of Australia for income tax purposes from the date of your departure for the foreign country.

Detailed reasoning

An Australian resident is defined in subsection 995-1(1) of the ITAA 1997 to be a person who is a resident of Australia for the purposes of the ITAA 1936.

The terms 'resident' and 'resident of Australia' in regard to an individual are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

1. The resides test

2. The domicile test

3. The 183 days test

4. The Superannuation test

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides.

1. The resides test

The ordinary meaning of the word 'reside' according to the Macquarie Dictionary, 2001, rev 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; have one's abode for a time' and according to the Compact Edition of the Oxford English Dictionary (1987), is to 'dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

Your intention was to leave Australia permanently for the foreign country in the recent year. You did in fact leave in the recent year and you:

· purchased a family home in the foreign country.

· sent some of your furniture and personal effects to your foreign property with the remainder in the process of being sold.

· leased out your Australian home on a long term lease following an unsuccessful attempt to find a suitable purchaser for it.

· sold your cars.

· have put other assets up for sale.

· have cancelled your Australian credit cards.

· informed the Electoral Commission that you are no longer living in Australia.

· advised Medicare that you are a non-resident.

· obtained health insurance in the foreign country.

· state that your immediate family will move permanently from Australia and relocate to foreign country.

· have business interests in the foreign country.

In view of the above, it is considered that you will no longer to be residing in Australia from the recent year.

2.The domicile test

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives. A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which a person intends to live for the rest of his or her life. An intention to return to Australia in the foreseeable future to live does not prevent the taxpayer in the meantime setting up a permanent place of abode elsewhere.

In order to show that a new domicile of choice in a country outside of Australia has been adopted, the person must be able to prove an intention to make his or her home indefinitely in that country.

In your case you have advised that you left Australia permanently to make your home in the foreign country in the recent year. You have bought a family home in that country and, after being unable to find a buyer for your home in Australia, have leased it out for a number of years. You have also sold some of your Australian assets and relocated others to the foreign country. In future you will visit Australia but only for short visits to see your relatives and for business reasons but will stay in hotels during those visits.

Although you will occasionally visit Australia in the future, it is considered that you will have established a permanent place of abode outside of Australia, that is, in the foreign country.

In view of these details, we consider that you no longer maintain your domicile in Australia.

3. The 183 day test

Where a person is present in Australia for 183 days during the year of income the person will be a resident, unless the Commissioner is satisfied that the person's usual place of abode is outside of Australia and the person does not intend to take up residence in Australia.

In your particular case, you left Australia permanently in the recent year. With the short visits you plan to make back to Australia in the subsequent income year, the amount of time you will have spent in Australia will be about 173 days which is less than the 183 days required for this test. However, as we have concluded that your usual place of abode will be in the foreign country from the recent year, this test does not need to be considered.

4. The superannuation test

An individual is still considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS), or that person is the spouse of such a person or child under 16 of such a person.

Information you have provided indicates that you are not a member of the PSS or the CSS or a spouse of such a person, or a child under 16 of such a person. Therefore, you will not be treated as a resident under this test.

Your resident status

As you are not deemed to be a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936, you are not considered to be an Australian resident from the date of your departure from Australia, recent year, under subsection 995-1(1) of the ITAA 1997.

Issue 2

Summary

A franked dividend paid by A Pty Ltd to you, will not be subject to dividend withholding tax if it is paid after you become a non-resident.

An unfranked dividend paid by A Pty Ltd to you, will be subject to dividend withholding tax if it is paid after you become a non-resident.

An unfranked dividend paid by A Pty Ltd to you, will not be subject to dividend withholding tax if it is paid after you become a non-resident and, is related to Conduit Foreign Income (CFI) as calculated under sections 802-30 to 802-55 of the ITAA 1997 and, has been declared to be CFI in the company's distribution statement.

Detailed reasoning

Subsection 128B(1) of the ITAA 1936 provides that, subject to certain exclusions, section 128B of the ITAA 1936 will apply to income derived by a non-resident that consists of a dividend paid by an Australian resident company.

Subsection 128B(4) of the ITAA 1936 provides that a person who derives dividend income to which section 128B of the ITAA 1936 applies, is liable to pay withholding tax on that dividend income.

An exemption is provided under paragraph 128B(3)(ga) of the ITAA 1936 for dividends paid by an Australian resident company which has been franked under the imputation provisions of sections 160AQF or 160AQFA. Thus, if a dividend is franked to 100%, there will be no withholding tax liability on that dividend. If a partially franked dividend is paid, the unfranked portion is subject to the withholding tax provisions

In your particular situation, A Pty Ltd is an Australian resident company. If the company pays you an unfranked dividend after you become a non-resident of Australia, that dividend payment will be subject to withholding tax under the provisions of subsections 128B(1) and 128B(4) of the ITAA 1936. If that dividend is fully franked, then it will not be subject to any withholding tax by virtue of paragraph 128B(3)(ga) of the ITAA 1936.

Under the provisions of section 802-15 of the ITAA 1997, any part of an unfranked distribution made by an Australian company that it declares to be CFI is not assessable to a foreign resident and is not subject to dividend withholding tax under section 128B of the ITAA 1936. The Australian company must make its declaration in its distribution statement on or before the day that the distribution is made. The CFI of a company is worked out by applying the provisions of sections 802-30 to 802-55 of the ITAA 1997.

In your case, if A Pty Ltd (an Australian resident company) has CFI according to sections 802-30 to 802-55 of the ITAA 1997 and, makes an unfranked distribution to you after you have become a non-resident of Australia then, that distribution will not be subject to dividend withholding tax under section 128B of the ITAA 1936 if they declared that distribution to be CFI in its distribution statement.

Issue 3

Summary

As you are the beneficial owner of the assets of the Trust (a non resident), a transfer of the trust's assets to you after you become a non-resident will not attract an Australian tax liability on the transfer.

Detailed reasoning

As a result of a Deed of Settlement reached with the Commissioner of Taxation in 200X and the subsequent two Private Rulings issued, you settled a non-resident trust known as the Trust. This trust invested approximately $10,000,000 in units in X. The above-mentioned private rulings determined that these units are beneficially owned by you irrespective of the Trust's "legal control" of those units. Any payments by X to the trust are actually considered to be made to you for tax purposes. The transfer of the Trust's assets, the units in X, to you, will not alter your beneficial ownership of those units and on this basis, there will be no Australian tax consequences of a transfer after you become a non resident of Australia.

For income tax purposes, a person makes a capital gain or loss only if a capital gains tax (CGT) event happens. Under section 104-160 of the ITAA 1997, CGT event I1 occurs when an Individual stops being an Australian resident. As you are the beneficial owner of the units in X, you will have to work out if you have made a capital gain or loss on those units when you became a non-resident.

You make a capital gain if the market value of those units (at the time of becoming a non-resident) is more than its cost base. You make a capital loss if the market value of those units is less than its cost base. Under the provisions of section 104-165 of the ITAA 1997, you can choose to disregard making a capital gain or loss on those assets covered by CGT event I1. However, if you so choose, then each of those assets is taken to be taxable Australian property until the earlier of a CGT event happening in relation to the asset if the CGT event involves you ceasing to own the asset or you again becoming an Australian resident.

Issue 4

Summary

A lump sum or pension you might receive from the FSF after you turn 55, will not be assessable income for Australian tax purposes at that time if you are a non-resident of Australia.

Detailed reasoning

FSF is a non resident superannuation fund. You are currently XX years of age and may consider retiring sometime after your 55^th birthday. We have accepted that you became a non-resident of Australia from the recent year. At the time of your possible retirement you will have been a non-resident of Australia for at least two years.

Division 305 of the ITAA 1997 sets out the tax treatment of lump sums received by members of foreign superannuation funds. Section 305-70 of the ITAA 1997 explains how to calculate what parts of the lump sum payment are to be included in assessable income and what parts are non-assessable, non exempt. However, subsection 305-70(1) of the ITAA 1997 states that the section will only apply if you are an Australian resident when you receive the lump sum. As you will not be an Australian resident when you receive the lump from FSF, that lump sum will not be assessable to you for Australian tax purposes. Under section 6-5 of the ITAA 1997, the assessable income of a foreign resident includes both ordinary and statutory income you receive that has an Australian source. A pension that you might receive in the future from FSF, when you are a non-resident of Australia, will not be assessable to you for Australian taxation purposes, as the source of the pension will not be Australian.

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