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Edited version of your written advice
Authorisation Number: 1051400333809
Date of advice: 20 July 2018
Ruling
Subject: Trust residency status for taxation purposes
Question
Did the X Family Trust (XFT) cease to be an Australian resident trust for Australian tax purposes when the location of the trustee company’s central management and control moved outside of Australia thereby triggering capital gains tax (CGT) event I2 for XXFT?
Answer
No
This ruling applies for the following periods:
Year ending 30 June 20XX
Year ending 30 June 20XX
Year ending 30 June 20XX
The scheme commences on:
07 July 20XX
Relevant facts and circumstances
FT Pty Ltd (FTPL) was incorporated in Australia on the same day X Family Trust (XFT) was established.
FTPL is the trustee of XFT, an Australian discretionary family trust.
XFT invests in passive assets, including cash assets and shares in a foreign unlisted company. The shares are not taxable Australian property under Division 855 of the Income Tax Assessment Act 1997 (ITAA 1997).
X was the sole shareholder and director of FTPL, and its company secretary, until another family member was appointed as a second director of FTPL and company secretary. This followed X’s relocation overseas.
X, as director, makes all of the strategic and investment decisions affecting XFT. The appointment of the other family member was necessary to ensure that FTPL complied with Australian corporate legislation whilst X resided overseas.
X returned to live in Australia.
X was an Australian resident for tax purposes until their departure for the overseas country. X was a resident of the overseas country and non-resident of Australia for tax purposes from the day they moved from Australia until their return to Australia to live. Since the date X arrived back in Australia they have been an Australian resident once again for tax purposes.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 104-170
Income Tax Assessment Act 1997 subsection 104-170(2)
Income Tax Assessment Act 1997 subsection 960-100(1)
Income Tax Assessment Act 1997 section 995-1
Income Tax Assessment Act 1936 section 6(1)
Income Tax Assessment Act 1936 subsection 95(2)
Reasons for decision
Australian Domestic Law
Section 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) states:
Resident trust for CGT purposes: a trust is a resident trust for CGT purposes for an income year if, at any time during the income year:
(a) for a trust that is not a unit trust, a trustee is an Australian resident or the central management and control of the trust is in Australia; or
(b) …
X is the controller of the trustee, FT Pty Ltd (FTPL), by virtue of making all of its strategic and investment decisions in their capacity as director. Despite this, FTPL and not X is the trustee of FTPL.
FTPL and X are separate entities for tax law purposes under subsection 960-100(1) of the ITAA 1997.
Section 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936) defines which companies are resident for tax purposes. It states:
Resident or resident of Australia means:
(a)…
(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.
FTPL is therefore an Australian resident because it is incorporated in Australia. It is immaterial whether or not its central management is located in Australia or elsewhere.
The further outcome is that XFT was a resident trust for CGT purposes, within subsection 995-1(1) of the ITAA 1997 in all relevant income years because its trustee (FTPL) was an Australian resident.
The change in residence of X, director of the trustee company, from Australian to the overseas country and back again, does not change this situation.
Issues relating to change in management and control of FTPL, as a result of X’s relocation to overseas, do not bear on the question of the residency of XFT.
Conclusion
We conclude that CGT event I2 does not happen as a result of X’s relocation to the overseas country because XFT does not stop being a resident trust for CGT purposes.
XFT is an Australian resident at all relevant times under Australian domestic law. The trustee company was an Australian resident at all relevant times. Therefore XFT was a resident trust for CGT purposes.
X’s move overseas does not alter this fact. Issues relating to change in management and control of FTPL, as a result of X’s relocation overseas, do not bear on the question of the residency of XFT.