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Edited version of your written advice
Authorisation Number: 1051416645134
Date of advice: 21 August 2018
Ruling
Subject: Application of Division 7A to payments received from a non-resident private company
Question
Is the Company deemed to have paid a dividend to the Taxpayer pursuant to Division 7A of Part III of the Income Tax assessment Act 1936 (ITAA 1936)?
Answer
No
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
Year ended 30 June 2016
Relevant facts and circumstances
1. The private company is a non-resident company (the Company).
2. The Taxpayer’s spouse, at the time, was not a resident of Australia for taxation purposes and was the sole shareholder and director of the Company.
3. The spouse directed the Company to pay certain amounts to the Taxpayer. These amounts were assessed to the spouse under the appropriate foreign tax laws as income. The Company was liable to pay these amounts to the spouse and the spouse could draw down these amounts from the Company at any time during the ruling period.
4. The payments made to the Taxpayer were for the Taxpayer’s support and maintenance.
Relevant legislative provisions
Income Tax Assessment Act 1936
Income Tax Assessment Act 1936 Division 7A of Part III
Income Tax Assessment Act 1936 section 109BC
Income Tax Assessment Act 1936 section 109C
Income Tax Assessment Act 1936 subsection 109C(1)
Income Tax Assessment Act 1936 subsection 109C(3)
Income Tax Assessment Act 1936 Subdivision 109D
Reasons for decision
Summary
The payments received by the Taxpayer from the Company are amounts to which the provisions of Division 7A of the ITAA 1936 do not apply.
Detailed reasoning
Application of Division 7A to non-resident private companies
Under Division 7A of the ITAA 1936, amounts paid, lent or forgiven by a private company to a shareholder or to their associate are treated as dividends, unless they come within specified exclusions.
Division 7A of the ITAA 1936 applies to non-resident private companies.
Section 109BC of the ITAA 1936 sets out working rules to determine the non-resident private company’s ‘year of income’ and ‘lodgment day’ for the purposes of Division 7A.
Application to Taxpayer
The Taxpayer (an associate of a shareholder in the Company) received payments from the Company during the period between 1 July 2013 and 30 June 2016.
Pursuant to subsection 109C(1) of the ITAA 1936 (and subject to Subdivision 109D of the ITAA 1936), a private company (including a non-resident private company) is taken to pay a dividend to a shareholder in the private company, or an associate of such a shareholder, at the end of the private company’s year of income if the private company pays an amount to the entity during the year.
Subsection 109C(3) of the ITAA 1936 states that a payment to an entity means a payment and a credit of an amount to the extent it is to the entity, on behalf of the entity or for the benefit of the entity; and a transfer of property to the entity.
It is evident on the facts that the payments, made to the Taxpayer at the direction of the spouse (to whom the Company was liable to pay these amounts), were, pursuant to subsection 109C(3) of the ITAA 1936, made to the spouse.
Therefore, the payments are not, for the purposes of section 109C of the ITAA 1936, treated as having being paid to the Taxpayer.