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Edited version of your private ruling
Authorisation Number: 1012426038860
Ruling
Subject: Income - foreign losses
Question and Answer
1. Will profits or losses from an overseas business operation, undertaken by the Overseas Company 1 in an overseas country, through an Agency Agreement, on your behalf, be recorded as foreign income or losses to you?
Yes.
2. Can foreign losses being reported back to you, be able to be off-set against any domestic investment income in your income tax returns for the same year?
Yes.
This ruling applies for the following period
1 July 2010 to 30 June 2011
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
You, Australian Company 1, were incorporated.
Individual 1 is 100% shareholder of the Australian Company 1.
Overseas Company 1 was set up in a foreign country.
Individual 1 is 100% shareholder of the Overseas Company 1.
The Overseas Company 1 was set up for the purpose of managing and servicing a business operation, on behalf of Australian Company 1.
The Overseas Company 1 operates the business on behalf of the Australian Company 1.
Simultaneously, the Australian Company 2 was established. The company was set up for the sole purpose of being the Trustee of the Australian Trust.
The Australian Trust was established to hold assets that were to be used in conjunction with the business being operated overseas by Company 1.
The Overseas Company 2 was established at the same time, and exists to hold the assets overseas, under a Bare Trust Arrangement for the Australian Trust 1 in Australia.
The overseas entitles were established to resolve land registration as well as some other local issues; an Australian entity is unable to be registered as the lease-holder of the 99 year lease taken out on the property to operate the business.
A Nomination Agreement was signed between Australian Company 1 and the Overseas Company 1 (Nominee).
Under the Nominee Agreement it states the following;
1.1 The Nominee holds the Business and all right, title and interest therein as nominee for and on behalf of the Australian Company 1.
1.2 The Nominee otherwise has no legal or beneficial interest in the Business; and
1.3 All other attributes of the beneficial ownership of the Business shall be and remain in the Australian Company 1.
2.1 The Nominee shall at all times and from time to time deal with the Business as nominee for the Australian Company 1 only in accordance with the written or verbal instructions and directions of the Australian company 1 and not otherwise
An Agency Agreement was signed between Australian Company 1 and the Overseas Company 1.
Under the Agency Agreement it states the following;
2.1 Australian Company 1 confirms appointment of the Overseas Company 1 to conduct the Business as agent for, on behalf of and for the account of the Australian Company 1, and the Overseas Company 1 confirms the acceptance of that appointment.
1.2 All actions by the Overseas Company 1 will be as agent for the Australian Company 1 and the Overseas Company 1 must follow the directions of the Australian Company 1.
Australian Company 1 has an attribution percentage in the Overseas Company 1 of 100%.
The year ended 30 June 20XX is the first year that the Australian Company 1 has been in operation.
You propose to show the income from the overseas country only in your income tax return.
A Deed of Clarification and Rectification was signed between Australian Company 1 and the Overseas Company 1.
You are not required to lodge income tax returns in the foreign country because the foreign country imposes no income tax (personal or corporate) or capital gains tax on either residents or non-residents with the foreign country's sourced income.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Under the Nominee Agreement the following is stated;
1.1 The Nominee (Overseas Company 1) holds the Business and all right, title and interest therein as nominee for and on behalf of the Australian Company 1.
1.2 The Nominee otherwise has no legal or beneficial interest in the Business; and
1.3 All other attributes of the beneficial ownership of the Business shall be and remain in the Australian Company 1.
2.1 The Nominee shall at all times and from time to time deal with the Business as nominee for the Australian Company 1 only in accordance with the written or verbal instructions and directions of the Australian company 1 and not otherwise
Under the Agency Agreement the following is stated;
2.1 Australian Company 1 confirms appointment of the Overseas Company 1 to conduct the Business as agent for, on behalf of and for the account of the Australian Company 1, and the Overseas Company 1 confirms the acceptance of that appointment.
2.2 All actions by the Overseas Company 1 will be as agent for the Australian Company 1 and the Overseas Company 1 must follow the directions of the Australian Company 1.
You stated the Overseas Company 1 was set up to manage and service the business, on behalf of Australian Company 1.
As set out in the Nominee Agreement and Agency Agreement the Australian Company has control over the Overseas Company 1.
Accordingly, profits or losses from the overseas business operation, undertaken by the Overseas Company 1, through an Agency Agreement, on behalf of the Australian Company 1, can be recorded as foreign income or losses to the Australian Company 1.
Foreign losses
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.
The Overseas Company 1 was set up for the purpose of opening and operating a business, on behalf of Australian Company 1 and you propose to show the income from the Overseas Company 1 only in the Australian Company 1.
Therefore, any foreign losses being reported back to Australian Company 1 can be off-set against any domestic investment income in Australian Company 1's income tax returns for the same year.