Edited version of private advice

Authorisation Number: 1052117543090

Date of advice: 18 May 2023

Ruling

Subject: International issues - foreign partnership

Question 1

Where a foreign hybrid company election has not been made, is the Deferred Consideration you received in respect of the Sales Transaction at the specified dates treated as a dividend under Section 44 of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes. As you have not made a foreign hybrid company election the Deferred Considerations payment you will receive at the specified dates will be treated as a dividend paid to a shareholder by the company in accordance with Section 44 of the ITAA 1936.

Question 2

When you depart Australia after the specified date and you become a non-resident of Australia for tax purposes, will the Deferred Consideration payments received at the specified dates as a non-resident of Australia be considered non-assessable non-exempt (NANE) income?

Answer

Yes. As you will be a non-resident of Australia for tax purposes at the time that the Deferred Considerations payments are received the dividend income will be considered NANE.

This ruling applies for the following periods:

Year ended 30 June 20XX to year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Assumption

You will not make a foreign hybrid company election under Division 830 of the ITAA 1997 in relation to your interest in the T&T LLP.

You will move overseas after a specified date and will be a non-resident of Australia at the time that the Deferred Consideration payments are paid to you.

Relevant facts and circumstances

Background

•         You are an Australian tax resident and you were an Australian tax resident at the time of the Initial payment.

•         You have been a partner of Partnership A since a specified date. You are not a Board Member of Partnership A.

•         You owned a specified percentage of the share capital of Partnership A at the time of the sale transaction.

•         You will retire from Partnership A on a specified date and you intend to move overseas.

Partnership Background

•         Partnership A is an incorporated limited liability partnership formed in a foreign country.

•         Partnership A is treated as a body corporate and is therefore a separate legal entity in that foreign country.

•         Partnership A held 100% of the issued share capital of Company B.

•         Company B acts as the holding company of a trading group (Group C) which undertakes the trading activities of the group's business globally.

•         Partnership A's only source of income was dividend income distributions received from Company B before the sale transaction.

•         The Foreign Group C was founded in a foreign country, and they are now a world-leading professional services company, with multiple offices around the globe. The Group C offers independent advice for its clients across multiple industries.

Sale Transaction

•         In the relevant income year, a third party, foreign company, Company D, acquired specified percentage of equity interest in Company B from Partnership A, along with Company B's subsidiaries.

•         The sale was completed during the relevant income year.

•         The purchase price was payable to the partnership A by Company D in instalments and subsequently to the individual partners.

•         The deferred payments were fixed and were not contingent on future events or financial performance.

•         All consideration amounts were denominated in a foreign currency.

•         You received the Initial Consideration in a foreign currency during the relevant income year.

You have provided relevant clauses of your agreement which detail the obligations of the parties.

Relevant legislative provisions

Section 44 Income Tax Assessment Act 1936

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

Subsection 995-1(1) Income Tax Assessment Act 1997