Edited version of private advice

Authorisation Number: 1052153314480

Date of advice: 28 August 2023

Ruling

Subject: Temporary residents and foreign income

Question 1

Are you a temporary resident of Australia for tax purposes as defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. Section 995-1 of the ITAA 1997 states you are a temporary resident if you hold a temporary visa within the meaning of the Migration Act 1958, and neither you nor your spouse are an Australian resident within the meaning of the Social Security Act 1991. For the purposes of the Social Security Act 1991 an Australian resident is a person living in Australia who is an Australian citizen, a permanent visa holder or a protected special category visa holder.

In your case you and your spouse are citizens of Country A holding temporary visas within the meaning of the Migration Act 1958.

Question 2

Are you assessable on distributions from Trust A or Trust B (the Trusts)?

Answer

No. Distributions from the Trusts would potentially be assessable as statutory income under section 99B of the Income Tax Assessment Act 1936 (ITAA 1936). However, section 768-910 of the ITAA 1997 provides that statutory income derived from a foreign source (excluding where the income relates to employment or other services provided by the individual) is non-assessable non-exempt income when derived by a temporary resident of Australia.

Question 3

Will any payments or loans made to you by Company A, Company B, or Company C (the Foreign Companies) be deemed to be dividends and included in your assessable income under Division 7A of the ITAA 1936?

Answer

No. The Foreign Companies have no sources of income in Australia so any payments or loans the Foreign Companies make to you will have a foreign source. As an associate of a shareholder of each of the Foreign Companies, these loans or payments could be deemed to be dividends under sections 109C or 109D of the ITAA 1936, and included in your assessable income under section 44 of the ITAA 1936.

However, section 768-910 of the ITAA 1997 provides that statutory income derived from a foreign source (excluding where the income relates to employment or other services provided by the individual) is non-assessable non-exempt income when derived by a temporary resident of Australia.

Section 109L of the ITAA 1936 provides that where a payment or loan that would otherwise be treated as a dividend under Division 7A is not included in your assessable income due to another provision in the Act (including the ITAA 1997), the company is not deemed to have paid a dividend.

Question 4

Will any Trust distributions you receive which are sourced from payments made to the Trusts by liquidators on the winding of up of any of the Foreign Companies be included in your assessable income under section 97 of the ITAA 1936?

Answer

No. Upon the winding up of any of the Foreign Companies amounts paid to shareholders will be deemed to be dividends under section 47 of the ITAA 1936. As the Foreign Companies have no sources of income in Australia, these dividends will have a foreign source. Should you become presently entitled to these dividends through any of the Trusts these distributions would ordinarily be assessable income under section 97 of the ITAA 1936. However, section 768-910 of the ITAA 1997 provides that statutory income derived from a foreign source (excluding where the income relates to employment or other services provided by the individual) is non-assessable non-exempt income when derived by a temporary resident of Australia.

This ruling applies for the following period:

Income year ending 30 June 20XX

The scheme commenced on:

01 July 20XX

Relevant facts and circumstances

You and your spouse are citizens of Country A.

You and your spouse have been granted temporary visas. Your visa requires you to leave Australia within 5 years.

You and your spouse have never resided in Australia on a permanent visa or special category visa.

You are not employed in Australia and you do not intend to seek employment in Australia.

You and your spouse have never received social security payments in Australia

You are the beneficiary of two trusts, Trust A and Trust B (the Trusts).

Trust A owns:

•                     various passive assets such as cash, bonds, public equities and fund investments.

•                     25% of the shares in Company A. Company A was incorporated in Country B. Company A owns 100% of the shares in Company B. Company B holds nominal assets primarily consisting of cash for working capital. Company B was incorporated in Country C.

•                     100% of the shares in Company C. Company C was incorporated in Country C and holds various passive assets such as cash, bonds, public equities and fund investments.

Trust B owns various passive assets such as cash, bonds, public equities and fund investments.

None of the Trusts, Company A, Company B and Company C (the Entities) hold any assets or investments in Australia, or receive any income with an Australian source. The Entities are all non-residents of Australia for tax purposes.

You are not presently, and never have been, a trustee of either of the Trusts. The trustee for each of the Trusts is an independent, professional corporate trustee which is a non-resident of Australia for tax purposes. All decision making of the trustee in respect of the Trusts occurs outside Australia.

You are not a shareholder or director of any of Company A, Company B and Company C. The central management and control of all these companies is outside Australia, and 100% of voting power is held by non-residents of Australia for tax purposes.

It is possible that the corporate trustee may seek to wind up the Trusts at a future time. As part of this process the companies of which the Trusts are shareholders could be liquidated, and you might receive trust distributions arising from the liquidation process.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 44

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1936 Division 7A

Income Tax Assessment Act 1936 section 109C

Income Tax Assessment Act 1936 section 109D

Income Tax Assessment Act 1936 section 109L

Income Tax Assessment Act 1997 section 768-910

Income Tax Assessment Act 1997 section 995-1