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Edited version of your private ruling
Authorisation Number: 1012441190172
Ruling
Subject: Exemption from Withholding tax
Questions and answers
1. Is interest and dividend income paid by an Australian resident company (AusCo) to an overseas corporate trustee (Company A) of a Bare Trust for the named foreign funds, excluded from liability to withholding tax for the purposes of paragraph 128B(3)(jb) of the Income Tax Assessment Act 1936 (ITAA 1936)?
Yes.
2. Is interest and/or dividend income paid by AusCo to Company A, as trustee of the Bare Trust for the named foreign funds, non-assessable income of Company A under section 128D of the ITAA 1936?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Year ended 30 June 2017
The scheme commenced on:
1 July 2010
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.
Company A, a foreign company, has acquired debt and equity interests issued by an Australian resident corporation (AusCo).
Company A is a special purpose entity which, was incorporated at the time of the AusCo Investment for the primary purpose of acting as trustee of the Bare Trust.
As set out in the Trust Declaration, the beneficial interest in the assets of the x bare trusts is held for the benefit of the owners. A separate bare trust has been established in respect of each owner - that is, for each bare trust, a single owner is the holder of the beneficial interest in the assets of that bare trust.
A certain number out of the x bare trust arrangements have superannuation funds for non-residents as beneficiaries. The beneficiaries (or owners) of these bare trusts are the 'named foreign funds':
Each of the named foreign funds is a non-resident for the purposes of paragraph 128B(3)(jb) of the ITAA 1936 and is exempt from tax in its country of residence.
For each named foreign fund, interest and/or dividend income is excluded from liability to withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936. In addition, for each fund, interest and/or dividend income derived is non-assessable and non-exempt income under section 128D of the ITAA 1936.
Relevant legislative provisions
Income Tax Assessment Act 1936 Paragraph 128B(3)(jb).
Income Tax Assessment Act 1936 Section 128D.
Income Tax Assessment Act 1936 Subsection 128A(3).
Income Tax Assessment Act 1997 Section 118-520.
Reasons for decision
Bare trust
A bare trust exists where the trustee has no interest in the trust assets other than that existing by reason of the office of trustee and the holding of the legal title, and who has had no active duties to perform or who has ceased to have those duties with the result that in either case the property awaits transfer to the beneficiaries or at their direction.
Under a bare trust the beneficiaries are entitled to possession of the trust assets and the trustee must act in accordance with the direction of the beneficiary. Ultimately the trustee must deal with the property as directed by the beneficiary.
In this case, Company A is a resident of a foreign country and is the trustee of the Bare Trust. Company A has acquired debt and equity interests issued by AusCo, an Australian resident corporation.
Company A is a special purpose entity which was incorporated at the time of the AusCo Investment for the primary purpose of acting as trustee of the Bare Trust.
As set out in the Trust Declaration, the beneficial interest in the assets of the x bare trusts is held for the benefit of the owners. A separate bare trust has been established in respect of each owner - that is, for each bare trust, a single owner is the holder of the beneficial interest in the assets of that bare trust.
A certain number out of the x bare trust arrangements have superannuation funds for non-residents as beneficiaries. The beneficiaries (or owners) of these bare trusts are the 'named foreign funds':
As there is a bare trust arrangement, any income paid to Company A is income of the beneficiaries, or the named foreign funds.
Withholding tax
Section 128B of Division 11A of the Income Tax Assessment Act 1936 (ITAA 1936) imposes withholding tax on payment of dividends, interest and royalties made by Australian residents to non-residents. Subsection 128B(3) of the ITAA 1936 lists certain types of income to which withholding tax under section 128B of the ITAA 1936 does not apply. In particular, paragraph 128B(3)(jb) of the ITAA 1936 provides an exclusion from withholding tax for certain superannuation funds for foreign residents where the income.
(a) is derived by a non-resident that is a superannuation fund for foreign residents and
(b) consists of interest, or consists of dividends or non-share dividends paid by a company that is a resident; and
(c) is exempt from income tax in the country in which the non-resident resides;
Subsection 128A(3) of the ITAA 1936 states:
For the purposes of this Division, a beneficiary who is presently entitled to a dividend, to interest or to a royalty included in the income of a trust estate shall be deemed to have derived income consisting of that dividend, interest or royalty at the time when he became so entitled.
Although, the interest and dividend income is initially received by Company A before it is paid to the beneficiary foreign funds, under subsection 128A(3) of the ITAA 1936, the beneficiaries are deemed to derive the income.
Each of the named foreign funds in question is a non-resident for the purposes of paragraph 128B(3)(jb) of the ITAA 1936 and is exempt from tax in its country of residence.
For each fund, interest and/or dividend income is excluded from liability to withholding tax pursuant to paragraph 128B(3)(jb) of the ITAA 1936. In addition, for each fund, interest and/or dividend income derived is non-assessable and non-exempt income under section 128D of the ITAA 1936.
Accordingly, interest and dividend income paid by AusCo to Company A, as trustee of the Bare Trust for the named foreign funds, is excluded from liability to withholding tax for the purposes of paragraph 128B(3)(jb) of the ITAA 1936.
In addition, interest and/or dividend income paid by AusCo to Company A, as trustee of the Bare Trust for the named foreign funds is non-assessable income of Company A under section 128D of the ITAA 1936