Edited version of private advice

Authorisation Number: 1051980613759

Date of advice: 19 May 2022

Ruling

Subject: Trust distributions from a foreign trust to a temporary resident

Question

Are the trust distributions from the Trust, to the extent that they are sourced from Company A's dividends, non assessable, non exempt income in your hands in the 20XX-XX income year due to the application of section 768-910 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The trust distribution from the Trust to the extent it represents the Company A dividend, would ordinarily give rise to assessable income under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936). Section 768-910 of the ITAA 1997 provides that statutory income derived by a temporary resident from a foreign source is non-assessable non-exempt income (NANE) and, therefore, not subject to tax. As you are a temporary resident, and the source of the income from the Arena Trust is from a foreign source, the trust distribution will be NANE in your hands.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were born in Country A and are a citizen of Country A.

You hold a current Country A passport and entered Australia on that Country A passport.

You were born in 19XX and arrived in Australia a number of years ago with the intention of living in Australia.

You do not have a spouse.

You were not in Australia on XX February 20XX or for periods totalling 12 months during the two years immediately before that date.

You presented your current Country A passport to a customs officer upon arrival in Australia and subsequently when you re-entered Australia after temporary absences.

You hold a temporary visa in the form of a Special Category Visa (SCV) and have never been granted social security payments on the basis of being a protected SCV holder.

You are not a behaviour concern non-citizen or a health concern non-citizen.

You are not a permanent resident of Australia or an Australian citizen.

You are a beneficiary of the Trust and will receive distributions from it.

You received a previous ruling stating that you were a temporary resident of Australia.

Nothing has changed in relation to your circumstances since obtaining that ruling.

Background of the Group:

The Trust

The Trust is a Country A trust.

The Trust was set up a number of years ago.

The trustee of the Trust is not a resident of Australia and the central management and control of the Trust is not in Australia.

The Trust owns 100% of Company B and other shares.

The Trust's income consists of dividends and imputation credits from Country A companies.

In the relevant income year, the Trust is expected to have income from sources other than the dividend from Company A.

In the relevant income year, it is expected that there will be other beneficiaries presently entitled to income of the Trust.

Company B Group Ltd

Company B is a Country A company.

Company B owns 100% of Company A.

Company B acquired Company A as a long term investment.

Company B will be wound up following (a) the death of the patriarch of the family and (b) the family's desire to simplify the group and Company B is proposing to make an in specie distribution of its shares in Company A to the Trust (see below).

Company A Pty Ltd

Company A is an Australian company.

Company A is 100% owned by Company B Group Ltd ("Company B"), in Country A (see below).

Apart from its share capital, Company A's net assets comprises a capital reserve and accumulated profits.

The capital reserve relates to the sale of an asset several years ago.

The accumulated profits comprise interest (net of expenses) on a loan to a Country A company, Company B (another family entity).

Company A has no staff or accommodation in Australia.

All of Company A's administration is done from Country A.

The negotiations in relation to the loan were held and conducted from Company B office in Country A and personnel at the Country A office arranged, negotiated and executed the loan contract in Country A.

The interest on the loan (net of expenses and Country A interest withholding tax) is capitalised to the loan account (in other words, no cash is paid to Company A).

Proposed Restructure

Company B (in Country A) will be wound up following the death of the patriarch of the family and Company B is proposing to make an in specie distribution of its shares in Company A to the Trust.

Wind Up of Company A

After the transfer of the shares in Company A from Company B to the Trust, Company A would then be wound up.

As a precursor to this wind up or as part of the wind up, Company A would first distribute its accumulated profits and then its reserves to the Trust as ordinary dividends (under section 44 ITAA 1936) or deemed dividends (under section 47 (ITAA 1936)):

The dividends will comprise of Company A's accumulated profits and reserves.

Distribution from the Trust

In the relevant income year, the Trustee of the Trust intends to make you presently entitled to income from the Trust.

Relevant legislative provisions

Section 97 of the Income Tax Assessment Act 1936

Section 768-910 of the Income Tax Assessment Act 1997

Pt III Division 11Aof the Income Tax Assessment Act 1936

Section 128Bof the Income Tax Assessment Act 1936

Section128B(2A)of the Income Tax Assessment Act 1936

Section128B(2C)of the Income Tax Assessment Act 1936

Section128B(3)of the Income Tax Assessment Act 1936

ATO Views

Taxation Ruling TR 93/10 Income tax: whether a resident beneficiary of a non-resident trust estate is allowed a credit for Australian withholding tax

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