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Edited version of private ruling
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Ruling
Subject: Residency - trust
Question 1
Is the I Foundation a non resident trust?
Answer: Yes
This ruling applies for the following period
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2010
Relevant facts
TheI Foundation has a registered office in City A and has been founded in accordance with the Provisions of Article B of foreign country Law.
The initial capital amount contributed to the foundation was contributed as an unconditional gift by an individual X (person X).
Person X has no role to play in the management of the Foundation or in the conduct of its investment activities. they carry out no supervisory duties and has no responsibility in the managing of its investment activities.
Person X, shall be the entitled first principal beneficiary for the duration of their lifetime.
On the demise of person X the spouse shall be second beneficiary for the duration of their lifetime.
On the demise of person X and their spouse, the children as third beneficiaries, shall be equal beneficiaries,
If one of these children should die without leaving any offspring, the deceased's share shall fall in equal parts to the other children named as beneficiaries.
Should no beneficiary remain according to the afore-mentioned provisions, the foundation board shall, at his discretion, be entitled to distribute the assets or the earnings there from to any welfare, charitable, sporting, cultural, artistic or other similar institution.
A Foundation Board is appointed to the Foundation, person X not being a member of that Board. The Board members are professionals who are based in Country J. Person X was and is not involved in the appointment of members of the Board.
The foundation assets are held in different country, with the exception of some shares held in an Australian ASX-listed gold mining company.
The other assets of the foundation are predominantly Australian currency denominated term deposits held in foreign country banks.
The management and control of these assets resides with the overseas private bank.
The foundation board is empowered to appoint one or more curators, who have the responsibility of continually supervising the conduct and management of the foundations business, the monitoring of the observance of these statutes and any by-laws to them.
Relevant legislative provisions
Sub section 95(2) of the ITAA 1936.
Reasons for decision
A Trust is not defined in the Income Tax Assessment Act 1936 (ITAA 1936) or Income Tax Assessment Act 1997 (ITAA 1997). French J in Harmer & Ors v. Federal Commissioner of Taxation (1989) 20 ATR 1461; 89 ATC 5180 stated that a trust 'is notably a definition of a relationship by reference to obligations'. they went on to state that the four essential elements of a trust are:
1. a trustee who holds a legal or equitable interest in the trust property
2. the trust property which must be property capable of being held on trust and which includes a chose in action
3. one or more beneficiaries other than the trustee; and
4. a personal obligation on the trustee to deal with the trust property for the benefit of the beneficiaries, which obligation is also annexed to the property.
Having regard to the Statutes and By-Laws of the fund, all four elements are present so as to give rise to a trust relationship between the fund and the beneficiaries entitled to benefits from the trust fund.
The foundation has ownership and possession of the trust property and is the trustee. The trust property consists of shares and term deposits.
The Statutes and By-Laws of the found impose on it a personal obligation to deal with the trust property for the benefit of the beneficiaries.
Having regard to the relationship between the fund and beneficiaries and the express intention that the fund hold the property not exclusively for itself, but subject to an equitable obligation to deal with the property for the benefit of the beneficiaries the relationship constitutes a trust for the purposes of section 95 of the ITAA 1936
A 'resident trust estate' is defined in sub section 95(2) of the ITAA 1936.
for the purposes of this Division, a trust estate shall be taken to be a resident trust estate in relation to a year of income if:
(a) a trustee of the trust estate was a resident at any time during the year of income; or
(b) the central management and control of the trust estate was in Australia at any time during the year of income.
The foundation is not a resident trust estate for the purposes of Division 6 for the following reasons:
The Foundation Board resides overseas
Management and control of assets resides overseas.