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Edited version of your written advice
Authorisation Number: 1013051614093
Date of advice: 14 July 2016
Ruling
Subject: Commissioner's discretion under subsection 102AAZD(3) of the Income Tax Assessment Act 1936
Question 1
Will the Commissioner exercise his discretion under subsection 102AAZD(3) of the Income Tax Assessment Act 1936 (ITAA 1936) to reduce the attributable income of the employee benefit trust?
Answer
Yes
This ruling applies for the following periods:
30 June 2017 to 30 June 2019
The scheme commences on:
Year ended 30 June 200X
Relevant facts and circumstances
EmployerCo and other companies (the Employer companies) are Controlled Foreign Companies (CFCs) of AusCo, an Australian resident entity.
All the income derived by the Employer companies is foreign sourced.
EmployerCo established an incentive plan under an employee benefit trust (EBT) (the scheme).
The Employer companies contribute to the EBT in respect of their participating employees (employee beneficiaries).
AusCo does not control the EBT and has not transferred indirectly or directly any funds into the EBT and is not involved in the scheme. Neither AusCo nor any of its controlled entities benefit from the EBT.
The employee beneficiaries are foreign residents and employees of the Employer companies.
Any income or profits derived by the EBT are for the benefit of the non-resident employee beneficiaries of the EBT.
The EBT makes distributions to employees of the CFCs that are nominated beneficiaries of the EBT.
The non-resident employee beneficiaries pay their relevant share of tax to the relevant tax jurisdictions of those beneficiaries.
Relevant legislative provisions
Income Tax Assessment Act 1936 subsection 102AAZD(3)
Income Tax Assessment Act 1936 section 383
Income Tax Assessment Act 1936 paragraph 384(2)(b)
Income Tax Assessment Act 1936 paragraph 385(2)(b)
Reasons for decision
Summary
The Commissioner will exercise his discretion under subsection 102AAZD(3) of the ITAA 1936 to reduce the attributable income of the EBT.
Detailed reasoning
The Commissioner will exercise his discretion for the following reasons:
• In the absence of section 383, paragraph 384(2)(b) or paragraph 385(2)(b) of the ITAA 1936, the transferor trust rules would not have any indirect application to AusCo.
• But for the application of the CFC rules to AusCo all the entities involved in the scheme are non-residents and all income derived by the entities is foreign sourced.
• No mischief arises from these facts in terms of any potential abuse of the CFC rules.
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