Edited version of private advice

Authorisation Number: 1052000451769

Date of advice: 30 June 2022

Ruling

Subject: Residency and section 99B

Question 1

Are you a temporary resident under the Income Tax Assessment Act 1997?

Answer

Yes.

Question 2

Does section 99B of the Income Tax Assessment Act 1936 apply to you if you receive a capital distribution from the Trust that is attributable to a source outside of Australia?

Answer

No.

Based on the information provided to the Commissioner, you are a temporary resident under the Income Tax Assessment Act 1997 (ITAA 1997) as you meet the requirements within the meaning of section 995-1 of the ITAA 1997.

The capitalised distributions the Trust is distributing to you are ordinarily assessable income under section 99B of the Income Tax Assessment Act 1936 (ITAA 1936). As they are statutory income, it is necessary to consider the application of section 768-910 of the ITAA 1997, that is specifically paragraph 768-910(1)(b).

Subsection 768-910(2) of the ITAA 1997 provides that statutory income is taken to be derived when the circumstance occurs. For income to which section 99B of the ITAA 1936 applies, that is the time at which the distribution is made because that is when the disposition of property occurs. This is also the time at which source of that income, that is whether it is Australian or foreign sourced income, for the purposes of assessability is determined.

The capitalised distributions are composed of trust income earned in past years that has been accumulated, but not distributed to any beneficiary. As the capitalised distributions are capital of the trust, they will take on the same character as the trust itself, that is:

•         if the trust is a resident for taxation purposes in Australia, they will be Australian sourced, and

•         if the trust is a foreign resident then they will be foreign sourced distributions.

Section 99B of the ITAA 1936 does not apply to the income from the trust.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You have previously received a ruling in relation to this matter.

You and your spouse will be receiving distributions from a Country X based trust (the Trust). The Trust is intending to distribute 'capitalised distributions' to the taxpayer which are composed of income that has been generated by the Trust in specified income years.

The taxpayer and your spouse:

•         are married to each other,

•         were born in Country X and are citizens of Country X,

•         are not Australian citizens or permanent residents of Australia,

•         each hold a current Country X passport, and

•         each entered Australia on their Country X passport each time they arrived in Australia.

Later, you and your spouse purchased a property in Country Y. From around that time, you both lived in Country Y on visitor visas until you both became Country Y residents.

A number of years later, you purchased an apartment in Australia.

Since you purchased the apartment you and your spouse have:

•         divided your time between Australia and Country Y; and

•         treated the Australian Apartment as your home and your property in Country Y as a holiday house.

You and your spouse intend to make your relocation to Australia permanent.

You and your spouse intend to purchase a property in Australia.

Since the previous ruling:

•         you have sold the Apartment;

•         you have purchased a new property; and

•         the Corporate Trustees have sold the Country Y Property.

The Trust

The Trust is a discretionary trust that was established in Country X a number of years ago.

Until a specified date, the trustees of the Trust were:

•         yourself - who had been a trustee for a number of years, and

•         the Corporate Trustee, a company that is incorporated and has its registered office in Country X

Since the specified date, the sole director of the Trust has been the Corporate Trustee. The directors of the Corporate Trustee are:

•         Director 1 - a resident of Country X, and

•         Director 2 - a resident of Country X.

The settlors of the Trust were at the time of settlement, and remain today, Country X residents.

You and your spouse are discretionary beneficiaries of the Trust.

The Corporate Trustee makes and implements all decisions relating to the day-to-day administration of the Trust from Country X. These include decisions that relate to the payment of all expenses of the Trust, administering the Trust's bank accounts, accounting for income earned by the Trust, arranging for the payment of distribution to beneficiaries and general administration matters.

Trust resolutions are drawn up in Country X by the Corporate Trustee and the Trust's Country X accountant.

Until the specified date, all major investment decisions of the Trust were made jointly by the trustees based on the recommendations of the Corporate Trustee. Where an investment decision concerned a material change in the structure of the investment, the directors of the Corporate Trustee communicated their recommendation to you to obtain your agreement before implementing the proposal.

The meetings of the Trustees were physically held in the offices of the Corporate Trustee in Country X. This is where the two directors of the Corporate Trustee reside. You never attended any of those meetings in person or via video link, telephone or any other electronic means. Where the directors of the Corporate Trustee requested your comments on their proposed decisions during the time you were a co-trustee, this occurred via e-mail.

All of the Trust's advisers (including accountants, lawyers and investment advisers) are located in Country X.

The Trust has no bank account in Australia. Its only bank account is in Country X.

The property of the Trust comprises:

•         capital notes issued by Country X listed companies

•         a property in Country Y

•         an advance to yourself, and

•         shares in Australian listed companies.

The property of the Trust previously included shares in Country X companies.

The property of the Trust has never included Australian real property or other Australian assets (with the exception of shares in Australian listed companies).

The trust has derived income from the following sources:

•         interest from capital notes issued by Country X listed companies

•         dividends from Country X companies

•         a capital gain on the disposal of shares in a Country X unlisted company

•         interest from Country X bank accounts, and

•         dividends from shares in Australian companies (to which withholding tax had been applied, but that were not otherwise assessed in Australia).

Most of the Trust's other income has been accumulated by the trustees, such that it forms part of the capital of the Trust. Other amounts of income were distributed to you or other beneficiaries in the years in which they were derived.

The Trust is a Country X based trust that has been subject to and paid income tax in Country X on all its taxable income each financial year.

Assumptions

You and your spouse have been residents of Australia for taxation purposes since the specified date and intend to continue to be so for the remainder of the income year and the following years.

On and from the specified date, only the Corporate Trustee, in its capacity as trustee of the Trust, will be involved in, and direct, control and oversee:

•         the day to day administration of the affairs of the Trust;

•         decisions regarding the investment strategy of the Trust and to make, hold and dispose of investments of the Trust;

•         the obtaining of investment advice in relation to the investments of the Trust.

On and from the specified date you will not have any direct or indirect involvement in the decision-making process of the Trust.

On and after the specified date the Corporate Trustee will continue to make enquiries of yourself and other beneficiaries about their needs for distributions from the Trust. While the Trustee may take this information into account in the making of investment decisions, the Trustee will make all investment decisions independently of the taxpayer or associates of the taxpayer.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1936 subsection 99B(1)

Income Tax Assessment Act 1936 subsection 99B(2)

Income Tax Assessment Act 1997 section 768-910

Income Tax Assessment Act 1997 subsection 768-910(1)(b)

Income Tax Assessment Act 1997 subsection 768-910(2)

Income Tax Assessment Act 1997 subsection 995-1(1)

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