Edited version of private ruling

Authorisation Number: 1011823467339

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Ruling

Subject: Trust - non-resident trust

Question

Is the trust an Australian resident trust for taxation purposes?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

The Trust was established for charitable purposes.

You are the only trustee resident in Australia. All the other trustees are resident in country X.

The assets of the trust are industrial buildings in country X and some cash.

You state that the Trust is a resident in country X.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 6

Income Tax Assessment Act 1936 Subsection 95(2)

International Tax Agreements Act 1953 Section 4

Reasons for decision

Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936) distinguishes between a 'resident trust estate' and a 'non-resident trust estate'. Subsection 95(2) of the ITAA 1936 provides that a trust estate shall be taken to be a resident trust estate in relation to a year of income if:

A trustee of the trust estate was a resident at any time during the year of income; or

The central management and control of the trust estate was in Australia at any time during the year of income.

As you are a resident of Australia and is a trustee of the trust, the trust would qualify as a resident of Australia under subsection 95(2) of the ITAA 1936. However, as the trust is deemed a resident trust in country X, it is necessary to look at the International Tax Agreements Act 1953 (Agreements Act) to determine where the residence of the trust is as there are other trustees with separate residences.

Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997) so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited provisions).

A Schedule to the Agreements Act contains the tax treaty between Australia and country X (the country X Convention). The country X Convention operates to avoid the double taxation of income received by Australian and country X residents.

An article of the country X Convention provides that a person is a resident of country X if the person is resident in country X for the purposes of country X tax and a resident of Australia if the person is a resident of Australia for the purposes of Australian tax.

For the case of dual residency, it is necessary to consider the tie breaker rules in the country X Convention.

Another article of the country X Convention provides that:

Where by reason of the provisions of paragraph 1 a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated. If the State in which the place of effective management is situated cannot be determined, or the place of effective management is in neither State, then the competent authorities of the Contracting States shall endeavour to determine by mutual agreement in accordance with Article 25 the Contracting State of which the person shall be deemed to be a resident for the purposes of the Convention, having regard to its places of management, the place where it is incorporated or otherwise constituted and any other relevant factors. In the absence of such agreement, such person shall not be entitled to any relief or exemption from tax provided by this Convention.

The term 'effective management' is not defined in the country X Convention.

In interpreting the wording of the tax treaty, the Commissioner in Taxation Ruling TR 2001/13 accepts that it is appropriate to have reference to the OECD Commentary on the Model Tax Convention on Income and on Capital (Condensed Version 2010) (the OECD Commentary).

The OECD Commentary states at paragraph 24 on Model Article 4 that:

As a result of these considerations, the "place of effective management" has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole are in substance made. All relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time.

In this case, you are the only trustee resident in Australia. All the other trustees are resident in country X. The assets of the trust are industrial buildings in country X and some cash. You state that the Trust is a resident in country X. The key management and commercial decisions of the trust are made in country X.

Therefore, the trust's place of effective management is in country X and the trust will be deemed to be a resident solely in country X for the purposes of the country X Convention.

Note

Trustees do not need to lodge a trust tax return for a non-resident trust.

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