Edited version of your written advice

Authorisation Number: 1051349447331

Date of advice: 21 March 2018

Ruling

Subject: Interest

Question

Is the interest income you received from your investment assessable?

Answer

No.

Question

Is interest withholding tax payable on the interest you receive?

Answer

No.

This ruling applies for the following period(s)

Income year ending 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts and circumstances

You reside in a foreign country.

You are a non-resident of Australia for taxation purposes.

You have invested in a company, which:

● are an unsecured security.

● were issued on X.

● can be bought and sold on the Australian Securities Exchange.

● pay quarterly interest.

You expect to receive interest of between $X and $X in the year of the ruling.

The company is an Australian incorporated company and a resident of Australia for tax purposes.

The Prospectus issued to you by the company states that non-residents are not subject to non-resident withholding tax as the company issued the investment in a manner which will satisfy the requirements of section 128F of the Income Tax Assessment Act 1936.

Assumption

The company will continue to be a resident of Australia for tax purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Subsection 6-5(3)

Taxation Administration Act 1953 Section 12-245 of Schedule 1

Taxation Administration Act 1953 Paragraph 12-300(a) of Schedule 1

Income Tax Assessment Act 1936 Section 128A

Income Tax Assessment Act 1936 Section 128F

Reasons for decision

Assessable income and residency

It is the residency status of a taxpayer (rather than citizenship) that determines if and how much they will be taxed on their income for Australian income tax purposes.

If a taxpayer is an Australian resident, their assessable income includes the income they derived from all sources, whether in or out of Australia, during the income year. If they are a foreign resident, their assessable income includes the income they derived directly or indirectly from all Australian sources during the income year. When a foreign resident has Australian sourced income they must lodge an income tax return in Australia and include all their Australian sourced income, except any of the following from which Australian tax has already been withheld at source:

● interest

● unfranked dividends

● royalties.

Interest payment to overseas person

Section 12-245 of Schedule 1 to the Taxation Administration Act 1953 (TAA) imposes an obligation to withhold on entities that pay interest to an entity which provides a postal address outside Australia or if the interest is to be paid outside Australia.

However, paragraph 12-300(a) of Schedule 1 to the TAA provides that an entity is not required to withhold an amount from an interest payment if no withholding tax is payable in respect of the interest.

The company are required to withhold an amount from any interest paid to non-resident lenders unless no withholding tax is payable in respect of those interest payments.

Withholding tax exemption

Subsection 128F(2) of the ITAA 1936 provides that tax is not payable under Division 11A in respect of interest to which section 128F applies. Subsection 128F(1) of the ITAA 1936 provides that section 128F applies to interest paid by a company in respect of certain publicly offered debentures and debt interests if:

(a) the company was a resident of Australia when it issued the debenture or debt interest; and

(b) the company is a resident of Australia when the interest is paid; and

(c) for a debt interest other than a debenture – the debt interest:

i. is a non-equity share; or

ii. consists of 2 or more related schemes (within the meaning of the ITAA 1997) where one or more of them is a non-equity share; or

iii. is a syndicated loan; or

iv. is prescribed by the regulations for the purposes of this section; and

(d) either:

i. the issue of the debenture or debt interest satisfies the public offer test set out in subsection (3) or (4); or

ii. for a syndicated loan – the invitation to become a lender under the relevant syndicated loan facility satisfies the public offer test set out in subsection 128F(3A).

The company is a resident of Australia for tax purposes and it has been assumed, for the purpose of this Ruling, that the company will remain an Australian resident. Therefore, paragraphs 128F(1)(a) and 128F(1)(b) of the ITAA 1936 are satisfied.

As the requirements of subsection 128F(1) of the ITAA 1936 have been satisfied, the interest payments made by the company to the non-resident lenders will be exempt from interest withholding tax pursuant to subsection 128F(2) of the ITAA 1936. As the interest is exempt from interest withholding tax, pursuant to paragraph 12-300(a) of Schedule 1 to the TAA, the company will not be required under section 12-245 of Schedule 1 to the TAA to withhold any amount from interest it pays to non-resident lenders.