Edited version of private advice

Authorisation Number: 1052225862480

Date of advice: 11 April 2024

Ruling

Subject: Temporary resident and foreign source 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

Will distributions from the A Business Trust and the B Family Trust be included in your assessable income under section 99B of the Income Tax Assessment Act 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. 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

Will dividends paid to you by XXX Co. Limited be non-assessable non-exempt income under section 768-910 of the Income Tax Assessment Act 1997?

Answer

Yes. The dividend to you by XXX Co Limited, would ordinarily give rise to assessable income in your hands under section 97 of the ITAA 1936 (per Taxation Ruling TR 93/10 Income tax: whether a resident beneficiary of a non-resident trust estate is allowed a credit for Australian withholding tax). Section 768-910 of the ITAA 1997 provides that statutory income derived by a temporary resident from a foreign source is NANE and, therefore, not subject to tax. As you are a temporary resident, and the source of the income from the XXX Co Limited is from a foreign source, the trust distribution will be NANE in your hands.

Question 4

Will interest paid on loans owed to you by the A Trading Business Trust and the B Family Trust be non-assessable non-exempt income under section 768-910 of the Income Tax Assessment Act 1997?

Answer

Yes. The interest paid on loans owed to you by A Trading Business Trust and the B Family Trust, would ordinarily give rise to assessable income in your hands under section 97 of the ITAA 1936 (per Taxation Ruling TR 93/10 Income tax: whether a resident beneficiary of a non-resident trust estate is allowed a credit for Australian withholding tax). Section 768-910 of the ITAA 1997 provides that statutory income derived by a temporary resident from a foreign source is NANE and, therefore, not subject to tax. As you are a temporary resident, and the source of the income from the Handle Business Trust and Bell Family Trust is from a foreign source, the trust distribution will be NANE in your hands.

This ruling applies for the following periods:

1 July 2023 to 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You and your spouse arrived in Australia 20XX.

You and your spouse each hold a temporary visa in the form of a Special Category Visa (SCV).

Neither you nor your spouse has ever claimed or received social security payments in Australia.

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

Neither you nor your spouse is a permanent resident of Australia or an Australian citizen.

Neither you nor your spouse resided in Australia on or before 26 February 2001.

Neither you nor your spouse is a protected SCV holder under Section 7(2A-D) of the Social Security Act 1991.

Background of the group

The trusts

A Trading Business Trust

You were a trustee of A Trading Business Trust, a Country XX based trust from 20XX to 20XX.

There were two other trustees of A Trading Business Trust.

One of these trustees was replaced as a trustee of A Trading Business Trust by another independent professional trustee.

You and your spouse retired as trustees of A Business Trust and were replaced by the independent professional trustee in 20XX.

Neither the independent professional trustee nor your spouse are residents of Australia for tax purposes, and no business of trustees of A Business Trust is to be conducted away from Country XX.

A Business Trust does not own any Australian assets. Central management and control of this entity is in Country XX.

You and your spouse are jointly owed $X by A Business Trust, and interest will be charged on this amount. There are no other intermediaries between you, your spouse or the trust.

A Business Trust will distribute income derived from shares and investments outlined below to you.

The A Trading Business Trust owns:

•         A nominal cash balance held in a foreign bank account.

•         A $X term deposit with a foreign bank.

•         A $X term deposit with a foreign bank.

•         X shares in A Trading Co. Limited (99% of company shares on issue).

B Family Trust

You were a trustee of the B Family Trust, also a foreign trust.

You and your spouse retired as trustees of the B Family Trust and were replaced by another trustee 20XX.

Neither of the current trustees are residents of Australia for tax purposes, and no business of the trustees of the B Family Trust is to be conducted away from Country XX.

B Family Trust does not own any Australian assets. Central management and control of this entity is in Country B.

You and your spouse are jointly owed $X by the B Family Trust and interest will be charged on this amount. There are no intermediaries between you, your spouse or the trust.

The B Family Trust will distribute income derived from shares and investments outlined below to you.

The B Family Trust owns:

•         Cash of than $X held in a bank with the current trustees as signatories.

•         X shares in XYZ Limited, which is a Portfolio Investment Entity (PIE) fund.

•         $X managed by an asset management company invested primarily in overseas investments.

XXX Co. Limited

The XXX Co. Limited is a Country XX incorporated and Country XX tax resident company.

The directors of XXX Co. Limited are you and your spouse.

You and your spouse jointly own 1% of the shares of XXX Co. Limited in their own names.

XXXXX Co. Limited was put into a "short-form" liquidation process to wind the company up in 20XX.

Dividend income sourced from profits on the sale of business assets in Country B will be distributed to the shareholders throughout the wind-up process.

Once all company affairs are completed, and all dividends declared, the company will be removed from the register. This is expected to be after 20XX.

You and your spouse expect to travel together to Country B for the purposes of making any decisions in relation to XXXXX Co. Limited in the course of the wind-up process.

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 1997 subsection 995-1(1)

Migration Act 1958 section 32