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Edited version of your private ruling
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Ruling
Subject: Non-arm's length income
Question 1
Will a dividend received from a Limited Liability Company (LLC) incorporated overseas be included in the assessable income of a superannuation fund (the Fund)?
Answer
Yes
Question 2
Are the Limited Liability Companies incorporated overseas, which are wholly owned by the Fund, resident in Australia for taxation purposes?
Answer
No
This ruling applies for the following periods:
1 July 2010 to 30 June 2015
The scheme commences on:
1 July 2010
Relevant facts and circumstances
The Fund is a complying self managed superannuation fund.
The Fund owns 100% of shares in a LLC incorporated overseas (the Overseas LLC).
The Overseas LLC owns 100% of shares in a number of investment LLCs incorporated overseas (the Overseas Investment Companies).
Each of the Overseas Investment Companies own a number of rental properties overseas and receive rental income from the same.
Neither the Overseas LLC, nor any of the Overseas Investment Companies carry on any major operation activities such as trading, service provision or manufacturing activities.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 6(1)
Income Tax Assessment Act 1936 Subsection 44(1)
Income Tax Assessment Act 1997 Division 295
Income Tax Assessment Act 1997 Subsection 295-10
Reasons for decision
Assessable income- superannuation entities
Division 295 of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the special rules about taxation of superannuation entities, including complying superannuation funds. It explains how to calculate the taxable income of those entities and how to identify the components of that taxable income for the purpose of applying the correct tax rate.
Subsection 295-10 of the ITAA 1997 states that the taxable income of a complying superannuation fund must be calculated as if the fund were a resident taxpayer. Under this approach, most items that would be assessable if derived by any resident taxpayer fall into assessable income of the fund and most of the corresponding deductions are likewise available.
Accordingly, subsection 44(1) of the Income Tax Assessment Act 1936 (ITAA 1936), as far as relevant, provides that:
The assessable income of a shareholder in a company (whether the company is a resident or a non-resident) includes:
(a) if the shareholder is a resident:
(i) dividends (other than non-share dividends) that are paid to the shareholder by the company out of profits derived by it from any source; and
(ii) all non-share dividends paid to the shareholder by the company; and …
Based on the above, dividends received by the Fund from the Overseas LLC are to be included in the Fund's assessable income whether or not the Overseas LLC (or the Overseas Investment Companies) is a resident of Australia for taxation purposes.
Residency of the LLCs
The term' resident or resident of Australia' is defined in section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936). In respect of companies, the definition states in paragraph (b):
a company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia.
Considering the above definition, a company that does not carry on business in Australia will not be an Australian resident for taxation purposes.
You have stated that neither the Overseas LLC, nor any of the Overseas Investment Companies conduct any business in Australia.
As none of these companies conduct business in Australia, none of these companies are residents of Australia for taxation purposes.