Edited version of private advice

Authorisation Number: 1052212082852

Date of advice: 19 January 2024

Ruling

Subject: Foreign trust - non-resident trustees

Question 1

Was the Trust a resident of Australia for tax purposes for the 2004-05 to 2018-19 financial years?

Answer

No.

Question 2

Does the Trust need to lodge tax returns in Australia under subsection 161(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for the 2004-05 to 2018-19 financial years?

Answer

No.

This ruling applies for the following periods:

1 July 2004 to 30 June 2019

The scheme commenced on:

1 July 2003

Relevant facts and circumstances

Individual S was the settlor of the Family Trust (the Trust) which was established in Country G by a deed. Individual A, the appointor of the Trust, has been a resident for tax purposes of Australia for more than XX years. The following are or were trustees of the Trust from its formation until now:

•         Individual S (trustee from formation until present)

•         Company C Limited

•         Company D Ltd

•         Individual T.

During the ruling period, all of the trustees of the Trust were not residents of Australia at the time that they were trustee of the Trust. They were residents of Country G.

It has been advised that the central management and control of the Trust has not been in Australia since the Trust's formation until now.

Under the relevant clause of the Trust's deed, the trustees of the Trust have absolute discretion in the investment of the Trust's funds.

The discretionary beneficiaries include, among others, the appointer, the final beneficiaries or their children, any siblings of the appointer or their children, the parents of the appointer, any lineal descendants of any final beneficiary, and any other beneficiary appointed by the appointor. The final beneficiaries are the children of Individual A.

The Trust purchased properties in Country G which they intend to sell in the next few years. The rental income from the properties in that country is the only income that the Trust has earned in the relevant years.

The Trust has been lodging tax returns in the other country, Country G for more than XX years.

Individual A has been transferring money to maintain the Trust and its operations.

The financial accounts/statements have been provided for the relevant years in relation to the accounting period of that country and show overall the investment in the properties resulted in a net loss apart from the last two years.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 subsection 95(2)

Income Tax Assessment Act 1936 subsection 161(1)

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

Income Tax Assessment Act 1997 subsection 6-10(5)

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

Reasons for decision

Question 1

Was the Trust a resident of Australia for tax purposes for the 2004-05 to 2018-19 financial years?

Summary

The Trust was not a resident of Australia for the relevant income years.

Detailed reasoning

Subsection 995-1(1) of the ITAA 1997 provides a definition of 'resident for CGT purposes'. For a trust that is not a unit trust, a trust is a resident for CGT purposes in an income year if at any time during the income year a trustee of the trust is an Australian resident or the central management and control of the trust is in Australia.

Subsection 95(2) of the ITAA 1936 also provides that a trust is a resident of Australia in relation to a year of income if:

(a)  a trustee of the trust estate was a resident at any time during the year of income; or

(b)  the central management and control of the trust estate was in Australia at any time during the year of income.

As the trustees of the Trust were not a resident of Australia and the central management and control of the Trust was not in Australia at any time in the 2004-05 to 2018-19 financial years, the Trust would not qualify as a resident of Australia under subsection 95(2) of the ITAA 1936 for the relevant years.

Question 2

Does the Trust need to lodge tax returns in Australia under subsection 161(1) of the ITAA 1936 for the relevant financial years?

Summary

The Trust is not required to lodge tax returns in Australia for the relevant income years.

Detailed reasoning

Subsection 161(1) of the ITAA 1936 requires that every person must, if required by the Commissioner, by legislative instrument, provide a return for a year of income within the period specified in the instrument.

Each year the Commissioner publishes, in accordance with subsection 161(1) of the ITAA 1936, a legislative instrument that requires every person prescribed in the relevant tables in the instrument to give a return for the year of income. A 'person' includes a trustee of a trust estate.

The legislative instrument requires a wide range of 'persons' to lodge a return. A non-resident taxpayer is required to lodge a tax return if at any time during the year of income the taxpayer derived income (including capital gains) that is taxable in Australia other than dividend, interest or royalty income subject to withholding payments. This is described in Table D of the legislative instrument OPS 2005/5, requiring lodgement of returns for the 2004-05 financial year, and in Table B (at item 2) of the legislative instrument LODGE 2019/1, requiring lodgement of returns for the 2018-19 financial year.

Division 6 of the ITAA 1997 contains the fundamental rules that a resident of Australia is generally assessable on their worldwide income, while a non-resident is generally assessable only on income from Australian sources.

Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income that is sourced directly or indirectly from all Australian sources during the financial year.

Subsection 6-10(5) of the ITAA 1997 provides that assessable income of a non-resident taxpayer includes all statutory income from all Australian sources.

A non-resident of Australia is not required to lodge a tax return in Australia unless they have income derived from Australian sources during the financial year.

As the Trust is considered to be a non-resident of Australia for taxation purposes, and has not derived any ordinary income or statutory income from Australian sources in the 2004-05 to 2018-19 financial years, the Trust is not required to lodge a tax return in Australia for the relevant years.

However any income or capital distribution that an Australian beneficiary receives from the Trust will be assessable to them in Australia.