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Edited version of private advice
Authorisation Number: 1051645612878
Date of advice: 10 March 2020
Ruling
Subject: Division 7A and payments to associates
Question
Does subsection 109CA(7) of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the rent-free use of the Property by you so that a deemed dividend does not arise with respect to such use?
Answer
Yes.
On the information provided, it is evident that the criteria listed in subsection 109CA(7) of the ITAA 1936 is satisfied, being that the Property is your main residence, the provider of the Property is a private company, the Property was acquired by the Company prior to 1 July 2009 and the Company meets the conditions in section 165-12 of the Income Tax Assessment Act 1997 in respect of the Company maintaining the same owners during the ownership period.
Therefore, the rent-free use of the property by you does not constitute a payment to you under subsection 109CA(1) of the ITAA 1936 and there will be no deemed dividend payable to you under subsection 109C(1) of the ITAA 1936.
The Commissioner does not generally provide rulings for indefinite periods due to potential changes to the law in the future and also to potential changes to the facts and circumstances of the case. For this reason this ruling has been restricted to the period covered by the financial years up to the year ended 30 June 2024.
However, this does not mean that you are required to apply for a new ruling after four years. In the absence of any change to the legislation or material change to your circumstances, the interpretation of the law as explained in this ruling will continue to apply.
This ruling applies for the following periods:
Year ending 30 June 2024
Year ending 30 June 2023
Year ending 30 June 2022
Year ending 30 June 2021
Year ending 30 June 2020
Year ended 30 June 2019
Year ended 30 June 2018
Year ended 30 June 2017
Year ended 30 June 2016
Year ended 30 June 2015
Year ended 30 June 2014
Year ended 30 June 2013
Year ended 30 June 2012
Year ended 30 June 2011
Year ended 30 June 2010
Year ended 30 June 2009
Year ended 30 June 2008
Year ended 30 June 2007
The scheme commences on:
1 July 2006
Relevant facts and circumstances
The Foundation is an entity formed in Country X and its economic settlor (the Principal) is a non-resident of Australia for tax purposes.
The objects of the Foundation are to provide economic benefits to the members of certain families.
The establishing documents of the Foundation provide that the Principal, the Principal's direct descendants and trusts, foundations and other legal entities established for their benefit were to be appointed beneficiaries of the Foundation.
The Foundation has made a family trust election in accordance with section 272-80 of Schedule 2F of the ITAA 1936 that commenced prior to 2009.
Prior to 2009, the Foundation procured the incorporation of a company (the Company) in Country Y, with a nominal amount of share capital.
The Company is wholly owned by the Foundation. The shares in the Company are held by a nominee as bare trustee for the Foundation.
Prior to 2009, the Company acquired land in an Australian city and soon after entered into a contract with a construction company to build a house on the land (the Property).
The funding for the acquisition was provided by the Foundation to the Company as additional capital contributions.
The Property has been occupied by you and your family as your main residence and you are Australian residents for tax purposes.
You are a child of the Principal and a beneficiary of the Foundation.
There is no lease or licence to occupy the property between the Company or the Foundation and you. You have a right to use the Property at the discretion of the directors of the Company.
You are an associate of the trustees of the Foundation as per subsection 318(3) of the ITAA 1936.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 103A
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 Section 109CA
Income Tax Assessment Act 1936 Subsection 109CA(1)
Income Tax Assessment Act 1936 Subsection 109CA(7)
Income Tax Assessment Act 1936 Subsection 318(3)
Income Tax Assessment Act 1997 Section 165-12