Edited version of private advice

Authorisation Number: 1051567751443

Date of advice: 26 September 2019

Ruling

Subject: Same entity: transfer of jurisdiction of company registration; capital gains tax

Question 1

Will Company X be considered:

(a)   the same 'company' for the purposes of section 4-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as defined in section 995-1 of that Act; and

(b)   the same 'entity' as defined in sections 995-1 and 960-100 of the ITAA 1997,

both before and after Company X's transfer of registration from a foreign jurisdiction to Australia?

Answer

Yes

Question 1

Will a capital gains tax (CGT) event happen under Division 104 of the ITAA 1997 as a result of the transfer of Company X's registration from a foreign jurisdiction to Australia?

Answer

No

This ruling applies for the following periods:

Income year ended 30 June 2020

Income year ended 30 June 2021

The scheme commences on:

During the income year ending 30 June 2020

Relevant facts and circumstances

Company X was established many years ago in a foreign jurisdiction as a passive investment company by an individual (the deceased) who was a non-resident of Australia at that time.

The deceased became a resident of Australia more than twenty years ago and beneficially owned all the shares in Company X at the time of death. A will trust of the Estate (the Estate) was established and the shares in Company X form part of that Estate.

The entitlements to the shares in Company X are held on trust by the Trustees of the Estate who are all Australian residents. As such, legal title of the shares in Company X is currently held in the names of the Trustees jointly.

Company X is a resident of Australia for tax purposes and has not made any investment or conducted any business since the passing of the deceased.

Company X's only asset is the shares in Company Z, which were acquired long before the deceased's passing.

Company Z is an Australian resident company which conducts an enterprise in Australia.

As part of the finalisation of the administration of the Estate, the Trustees wish to bring the offshore assets of the Estate (Company X) to Australia and accordingly, remove the complexity and administrative cost associated with dealing with a foreign companies registry.

The Trustees wish to maintain the holding company structure for Company Z and so far as possible, maintain the estate plan under the will of the deceased. Transferring the registration of Company X from the foreign jurisdiction to Australia is the most simple and cost effective way of achieving this.

It is proposed to transfer Company X's registration by the following steps:

i.)     Application by the Trustees under Part 5B.1 of the Corporations Act 2001 (Corporations Act) to the Australian Securities and Investments Commission (ASIC) to register

ii.)    Company X as an Australian proprietary company limited by shares.

iii.)   Following registration of Company X as an Australian company, the Trustees will file the relevant notice of company continuance outside of the foreign jurisdiction to the relevant foreign jurisdiction authority.

iv.)  The relevant foreign jurisdiction authority will then issue a certificate of discontinuance and remove Company X from the foreign jurisdiction's company register.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 4-1

Income Tax Assessment Act 1997 section 100-20

Income Tax Assessment Act 1997 Division 104

Income Tax Assessment Act 1997 section 104-10

Income Tax Assessment Act 1997 subsection 104-10(1)

Income Tax Assessment Act 1997 subsection 104-10(2)

Income Tax Assessment Act 1997 section 995-1

Income Tax Assessment Act 1997 section 960-100

Corporations Act 2001 Part 5B.1

Corporations Act 2001 section 601BM

Corporations Act 2001 subsection 601BM(1)

Reasons for decision

Question 1

Summary

Company X will be considered:

(a)   the same company for the purposes of section 4-1 of the ITAA 1997, as defined in section 995-1 of the ITAA 1997; and

(b)   the same entity as defined in section 960-100 and section 995-1 of the ITAA 1997;

both before and after Company X's transfer of registration from the foreign jurisdiction to Australia.

Detailed reasoning

Section 4-1 of the ITAA 1997 states that:

That income tax is payable by each individual and company, and by some other entities.

A 'company' is defined in section 995-1 of the ITAA 1997 as:

(a) a body corporate; or

(b) any other unincorporated association or body of persons; but does not include a partnership or a non-entity joint venture.

As the term 'body corporate' is not defined in Australia's income tax legislation, the ordinary meaning of the term applies. The Macquarie Dictionary defines a body corporate as a person, association or group of persons legally incorporated in a corporation.

The Commissioner has considered the meaning of the term 'body corporate' in Miscellaneous Taxation Ruling MT 2006/1 - The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian business number (ABN) (MT 2006/1)

Paragraph 30 of MT 2006/1 states that the term 'body corporate' has the following meaning:

'Body Corporate' is not a defined term. The term takes its meaning from the general law. 'Body corporate' is a general term to describe an artificial entity having separate legal existence. A body corporate has the ability to continue in existence indefinitely and to keep its identity regardless of changes to its membership. It also has the power to act, hold property, enter into legal contract, sue and be sued in its own name, just as a natural person can.

It is apparent from Company X's Articles of Incorporation that Company X is an entity with a separate legal status distinct from that of its members. Accordingly, Company X is a body corporate for the purposes of the ITAA 1997. It is also a 'company' as defined in section 995-1 of the ITAA 1997.

The term 'entity' is defined in section 995-1 of the ITAA 1997 to have the meaning given in section 960-100 of the ITAA 1997. In section 960-100 an 'entity' is defined to mean any of the following:

(a) an individual;

(b) a body corporate;

(c) a body politic;

(d) a partnership;

(e) any other unincorporated association or body of persons;

(f) a trust;

(g) a superannuation fund;

(h) an approved deposit fund

As a body corporate, Company X also falls within the meaning of 'entity' in section

960-100 of the ITAA 1997.

ATO Interpretative Decision 2004/798 considers whether or not the taxpayer, after conversion from an incorporated co-operative to a company, was the same 'entity' for all purposes under the ITAA 1997. ATO ID 2004/798 concludes that the taxpayer remained the same entity for the purposes of section 960-100 of the ITAA 1997 after conversion and states:

The provisions in the Co-op Act and the Corporations Act both provide for the continuation of the taxpayer as the 'same entity as the body corporate' which was the co-operative, and the act of registration under a different Act of itself will not create a 'new legal entity' (subsection 321(1) of the Co-op Act and paragraph 601BM(1)(a) of the Corporations Act).

In addition, the assets, rights and liabilities of the taxpayer vest in and are preserved when the taxpayer is registered under the Corporations Act without the need for any 'conveyance, transfer or assignment or assurance' (subsection 342(2) of the Co-op Act). This indicates that the identity of the body corporate is preserved and continues with the same assets, rights and liabilities, albeit as a company by registration.

Therefore, the taxpayer is the same body corporate and 'entity' for the purposes of the ITAA 1997 both before and after it completes its transfer of incorporation.

In the case of Company X the applicant has advised that:

(a) Company X's Articles of Incorporation contemplate the transfer of Company X's registration to another country;

(b) The relevant authority of the foreign jurisdiction permits the transfer of Company X's registration to another country or jurisdiction; and

(c) Part 5B.1 of the Corporations Act provides for the registration of a body corporate as a company and subsection 601BM(1) confirms that such registration does not create a new legal entity; affect the body's existing property, rights or obligations; or render defective any legal proceedings by or against the body or its members.

The Commissioner accepts the applicant's statements to the effect that the foreign jurisdiction will permit the transfer of Company X's registration to another country or jurisdiction and that Part 5B.1 of the Corporations Act will register Company X as an Australian proprietary company limited by shares.

The applicant has advised that after the registration of Company X in Australia under Part 5B.1 of the Corporations Act, Company X will file the relevant notice of company continuance outside of the foreign jurisdiction. The relevant foreign jurisdiction authority will then issue a certificate of discontinuance and remove Company X from the foreign jurisdiction's company register.

Further, the applicant has advised that Company X will amend the Articles of Incorporation as necessary to align with and reflect Company X's registration as a proprietary limited company in accordance with Part 5B.1 of the Corporations Act.

Company X's shareholding and directorship, as well as its operations and assets will remain the same both before and after the change of jurisdiction to Australia and Company X is a resident of Australia for tax purposes.

Accordingly, Company X will be considered the same company for the purposes of section 4-1 of the ITAA 1997, as defined in section 995-1 of the ITAA 1997; and will be considered the same entity as defined in section 960-100 of the ITAA 1997, both before and after Company X's transfer of registration from the foreign jurisdiction to Australia.

Question 2

Summary

There is no CGT event under Division 104 of the ITAA 1997 that will happen as a result of the transfer of Company X's registration from the foreign jurisdiction to Australia.

Detailed reasoning

Section 100-20 of the ITAA 1997 provides that you can only make a capital gain or capital loss if a CGT event happens. The CGT events are provided in Division 104 of the ITAA 1997.

The only relevant CGT event that may be applicable to this case happens if you dispose of a CGT asset and CGT event A1 occurs pursuant to subsection 104-10(1) of the ITAA 1997.

Subsection 104-10(2) of the ITAA 1997 explains that you dispose of a CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law.

In this case, Company X will be the same company and same entity after the transfer of its registration from the foreign jurisdiction to Australia. That same entity will continue to hold the CGT assets which Company X currently holds.

Accordingly, there is no change of ownership (i.e. a disposal) in respect of the assets of Company X as a result of the transfer of its registration from the foreign jurisdiction to Australia. Consequently, a capital gain or loss will not arise from the transfer of Company X's registration from the foreign jurisdiction to Australia.