Edited version of private advice

Authorisation Number: 1052136046281

Date of advice: 24 July 2023

Ruling

Subject: Temporary resident - foreign income

Question 1

Are you a temporary resident under the Income Tax Assessment Act 1997 (ITAA 1997) for Australian tax purposes?

Answer

Yes. Under subsection 995-1(1) of the ITAA 1997 you are a temporary resident because you hold a temporary resident special category visa granted under the Migration Act 1958, you are not an Australian resident within the meaning of the Social Security Act 1991 because you are not an Australian citizen or hold a permanent residency visa, and you do not have a spouse.

Question 2

Are the trust distributions from Trust A, Trust B, Trust C, Trust D and Trust E included in your assessable income under section 99B of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No. Section 99B of the ITAA 1936 would include distributions from foreign trusts as assessable income where conditions are met. In your case, you will receive amounts from foreign trusts that have a foreign source. Section 768-910 of the ITAA 1997 provides that if you satisfy the requirements of a temporary resident, your statutory income from a source other than an Australian source will be non-assessable non-exempt income (NANE) when you derive it. Therefore, as you are a temporary resident, and the distributions have a foreign source, they will be NANE for you and not subject to tax. Further information is available in the Explanatory Memorandum to the Tax Laws Amendment (2006 Measures No. 1) Bill 2006 at paragraph 1.23.

Question 3

Are the trust distributions from Trust E to the extent that they are sourced from Company A's dividends, non-assessable, non-exempt income in your hands in the relevant income year due to the application of section 768-910 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. The trust distribution from Trust E to the extent it represents the Company A dividend, would ordinarily give rise to assessable income under section 97 of the ITAA 1936. Section 768-910 of the ITAA 1997 provides that statutory income derived by a temporary resident from a foreign source is non-assessable non-exempt income (NANE) and, therefore, not subject to tax. As you are a temporary resident, and the source of the income from the trust is from a foreign source, the trust distribution will be NANE in your hands.

This ruling applies for the following periods:

Year ending 30 June 2023

Year ending 30 June 2024

Year ending 30 June 2025

Year ending 30 June 2026

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You were born in Country A and are a citizen of Country A.

You hold a current Country A passport and entered Australia on that Country A passport.

You were born in 19XX and arrived in Australia a number of years ago with the intention of living in Australia.

You do not have a spouse.

You were not in Australia on 26 February 2001 or for periods totalling 12 months during the two years immediately before that date.

You presented your current Country A passport to a customs officer upon arrival in Australia and subsequently when you re-entered Australia after temporary absences.

You hold a temporary visa in the form of a Special Category Visa (SCV) and have never been granted social security payments on the basis of being a protected SCV holder.

You are not a behaviour concern non-citizen or a health concern non-citizen.

You are not a permanent resident of Australia or an Australian citizen.

Background of the Group

The Trusts

You are a beneficiary of the five trusts and will receive distributions from them.

Each trust is centrally managed and controlled in Country A and the trust property in Country A.

Trust A consists of 50% interest in the assets of a partnership. Partnership assets were sold, and the Trust's assets are cash.

Trust B recently sold a building, and its assets are cash.

Trust C previously consisted of a property. The property has been sold and the Trust has no material assets.

Trust D's only asset is a loan to Trust E

Trust E is a Country A trust.

The Trust was set up a number of years ago.

The trustee of the Trust is not a resident of Australia and the central management and control of the Trust is not in Australia.

The Trust owns 100% of Company B and other shares.

The Trust's income consists of dividends and imputation credits from Country A companies.

In the relevant income year, the Trust is expected to have income from sources other than the dividend from Company A.

In the relevant income year, it is expected that there will be other beneficiaries presently entitled to income of the Trust.

Company B

Company B is a Country A company.

Company B owns 100% of Company A.

Company B acquired Company A as a long term investment.

Company B will be wound up following (a) the death of the patriarch of the family and (b) the family's desire to simplify the group. Company B was placed into liquidation and made an in-specie distribution of its shares in Company A to Trust E (see below).

Company A Pty Ltd

Company A is an Australian company.

Company A is 100% owned by Company B in Country A (see below).

Apart from its share capital, Company A's net assets comprises a capital reserve and accumulated profits.

The capital reserve relates to the sale of an asset several years ago.

The accumulated profits comprise interest (net of expenses) on a loan to a Country A company, Company B (another family entity).

Company A has no staff or accommodation in Australia.

All of Company A's administration is done from Country A.

The negotiations in relation to the loan were held and conducted from Company B office in Country A and personnel at the Country A office arranged, negotiated and executed the loan contract in Country A.

The interest on the loan (net of expenses and Country A interest withholding tax) is capitalised to the loan account (in other words, no cash is paid to Company A).

Wind Up of Company A

After the transfer of the shares in Company A from Company B to the Trust, Company A would then be wound up.

As a precursor to this wind up or as part of the wind up, Company A would first distribute its accumulated profits and then its reserves to Trust E as ordinary dividends (under section 44 ITAA 1936) or deemed dividends (under section 47 (ITAA 1936)):

The dividends will comprise of Company A's accumulated profits and reserves.

Distribution from Trust E

In the relevant income year, the Trustee of the Trust intends to make you presently entitled to income from the Trust.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 6-10

Income Tax Assessment Act 1997 section 768-910

Income Tax Assessment Act 1997 section 768-915

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1936 section 97

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

Migration Act 1958 section 32

Income Tax Assessment Act 1936 Pt III Division 11A

Income Tax Assessment Act 1936 section 128B

Income Tax Assessment Act 1936 section 128B(2A)

Income Tax Assessment Act 1936 section 128B(2C)

Income Tax Assessment Act 1936 section 128B(3)