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Ruling

Subject: Income tax exemption

Question and answer:

Is the trustee of your organisation excluded from liability to withholding tax on its interest and/or dividend income derived from Australia under paragraph 128B(3)(a) of the ITAA 1936?

No.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commence on:

25 May 2012

Relevant facts and circumstances

Your organisation has been established as a genuine charity, religious or apostolic organisation benefits for non-residents of Australia.

It has been set up and maintained outside of Australia by non-residents of Australia.

No contributions to the organisation are capable of being claimed as a rebate or deduction under any section of the ITAA 1936 or ITAA 1997.

The organisation is exempt from income tax in the country of residence.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 128B

Income Tax Assessment Act 1936 Subsection 128B(3)

Income Tax Assessment Act 1936 Paragraph 128(3)(jb)

Income Tax Assessment Act 197 Section 50-5

Income Tax Assessment Act 1997 Section 50-50

Income Tax Assessment Regulations 1997 Regulation 50-50.01

Income Tax Assessment Regulations 1997 Regulation 50-50.02

Taxation Administration Act 1953 Section 359-5 of Sch 1

Taxation Administration Act 1953 Sections 359-25(3) and (4) of Sch 1

Reasons for decision

Paragraph 128B(3)(a) of the ITAA 1936

Pursuant to paragraph 128B(3)(a) of the ITAA 1936, withholding tax does not apply to income derived by a non-resident

(i) that is exempt from income tax because of section 50-5 (other than because of item 1.5A, 1.5B or 1.6 in the table in that section) of the ITAA 1997; and

(ii) that is exempt from income tax in the country in which the non-resident resides.

The two conditions must be met for the exemption to apply.

The effect of sections 50-5 and 50-50 of the ITAA 1997 is that for a non-resident charitable institution or religious institution to be exempt from withholding tax on Australian sourced interest and/or dividend income it must:

· have a physical presence in Australia and pursue its objectives principally in Australia,

· be an institution to which tax deductible gifts can be made;

· be prescribed a institution located outside Australia and exempt from income tax in the country in which it is resident; or

· be a prescribed institution which has a physical presence in Australia but pursue its objectives principally outside Australia.

Your organisation does not meet any of the conditions in section 50-50 of the ITAA 1997. It was set up and is maintained outside of Australia for the benefit of non-residents of Australia. Contributions made are not tax deductible in Australia. It is not a prescribed institution.

(Note: prescribed institutions are contained in regulations 50-50.01 and 50-50.02 of the Income Tax Assessment Regulations 1997.)