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Edited version of administratively binding advice
Authorisation Number: 1012397016107
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Subject: Residency - Limited Liability Company formed in an overseas country
Question and Answer
Is the Limited Liability Company 2, formed in an overseas country, a resident of Australia for taxation purposes?
No.
This advice applies for the following period
1 July 2012 to 30 June 2016
Relevant facts and circumstances
Entity X is proposing to establish a Limited Liability Company 2 (LLC 2) which is formed overseas.
The LLC will not be carrying on a business in Australia.
Entity X will be the sole member of the LLC 2.
The LLC 2 would have two director's being Individual Y & Individual Z.
Company W has two directors been Individual Y & Individual Z.
The shareholders of company W are Individual Y & Individual Z.
Individual Y & Individual Z both reside in Australia.
Entity B has two members been, Individual Y & Individual Z
Entity B would acquire the issued capital of the LLC 2 which is equivalent to the value of the property to be acquired.
The LLC 2 will not be carrying on a business in Australia.
The LLC 2 will have no bank account in it and will not have any loans within it.
The LLC 2 would appoint a Real Estate Agent located in the overseas country with the intention of property acquisition for investment purposes.
Real Estate agent will:
· Advise and make recommendations on potential property/s to be purchased.
· Manage the acquisition processes of the property/s.
· Manage required works, if required, to make the property suitable for rental.
· Manage the property, including collecting rental income, paying expenses and dealing with all day to day requirements of the property.
The real estate agent would have authority to carry out all necessary repairs up to an amount of money without seeking approval from the director.
The director in Australia would make the following decisions, based on expert advice from the overseas country:
· The final decision to acquire a property.
· A possible decision in the future to sell the property.
· Making a decision on repairs costing more than an amount of money.
· Appointment of a real estate agent and managing agent.
Relevant legislative provisions
Income Tax Assessment Act 1936 section 6(1)
Reasons for decision
The term' resident or resident of Australia' is defined in section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). In respect of companies, the definition states in paragraph (b):
a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.
Therefore, as the Limited Liability Company 2 is being formed in the overseas country and is not carrying on business in Australia; it will not be an Australian resident for taxation purposes.
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