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Edited version of your written advice
Authorisation Number: 1051247777443
Date of advice: 7 July 2017
Ruling
Subject: Non-resident and shares
This ruling applies to:
Question and answer
1. Will the Capital gains provisions apply to the sale of your shares?
No.
2. Are franked dividends subject to withholding tax for non-residents?
No.
This ruling applies for the following periods:
Year ended 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
Year ending 30 June 2020
Year ending 30 June 2021
The scheme commenced on:
1 July 2016
Relevant facts and circumstances
You are a non-resident of Australia for taxation and immigration purposes.
You have purchased shares in an Australian public listed company.
You and your associates do not hold more than 10% of the shares in the publically listed company.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 855
Income Tax Assessment Act 1997 Section 855-10
Income Tax Assessment Act 1997 Section 855-15
Reasons for decision
Section 855-10 of the ITAA 1997 states that you disregard a capital gain or capital loss from a CGT event if:
a. you are a foreign resident and
b. the CGT event happens in relation to a CGT asset that is not a taxable Australian property.
Five categories of CGT assets that are taxable Australian property are set out in the table in section 855-15 of the ITAA 1997:
1. Taxable Australian real property;
2. A CGT asset that:
a. Is an indirect Australian real property interest; and
b. Is not covered by item 5;
3. A CGT asset that:
a. You have used at any time in carrying on a business through a permanent establishment in Australia; and
b. Is not covered by item 1, 2 or 5;
4. An option or right to acquire a CGT asset covered by item 1, 2 or 3; and
5. A CGT asset that is covered by subsection 104-65(3) of the ITAA 1997(choosing to disregard a gain or loss on ceasing to be an Australian resident).
Section 855-20 of the ITAA 1997 states that a CGT asset is taxable Australian real property if it is:
a. real property situated in Australia; or
b. a mining, quarrying or prospecting right (to the extent that the right is not real property), if the minerals, petroleum or quarry materials are situated in Australia.
Shares in a resident company do not satisfy the definition of taxable Australian real property as they are neither real property (within the ordinary meaning of that term) nor a mining, quarrying or prospecting right.
Indirect Australian property interest
An indirect Australian property interest (section 855-25 of the ITAA 1997) will only exist where a foreign resident has membership interest in an entity and that entity passes two tests:
● the non-portfolio interest test; and
● the principal asset test.
As set out in section 960-195 of the ITAA 1997, a membership interest held by an entity (the holding entity) in another entity (the test entity) passes the non-portfolio test if the sum of the direct participation interests held by the holding entity and its associates in the test entity is 10 per cent or more.
You and your associates do not own more than 10% of the shares in the public companies.
Therefore there is no CGT payable on any gain arising from the shares when they are disposed of and no losses can be carried forward.
Franked dividends
As a non-resident of Australia for taxation purposes the franked amount of dividends that are paid or credited to you are exempt from income and withholding taxes.
You are not entitled to any offset for franked dividends
You cannot use any franking credit attached to franked dividends to reduce the amount of tax payable on other Australian income and you cannot get a refund of the franking credit.
You should not include the amount of any franked dividend or franking credit on your Australian tax return.
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