Private ruling: International issues - foreign partnership - foreign hybrid company election
Date of advice: 5 August 2022
Published: November 2022
Ruling period: Year ending 30 June 2022 | Year ending 30 June 2023 | Year ending 30 June 2024 | Year ending 30 June 2025 | Year ending 30 June 2026
Date scheme commenced: 1 July 2021

Ruling: Q1: Is the Initial Consideration you received in respect of the Sale Transaction during the relevant financial year treated as assessable income for Australian tax purposes? | A1: No. As you were a temporary resident when the Initial Consideration was derived, the amount will be NANE income under section 768-910 of the Income Tax Assessment Act 1997 (ITAA 1997). | Q2: Will the Deferred Consideration to be received post relevant date in respect of the Sale Transaction give rise to a capital gain or loss under capital gains tax (CGT) event C2? | A2: Yes. Where the right to an interest in the foreign partnership's debt receivable ends, CGT event C2 will occur in accordance with subsection 104-25(1) of the ITAA 1997. | Q3: Will the Deferred Consideration give rise to a forex realisation event 2 happening under Division 775 of the ITAA 1997? | A3: No. In your circumstances, a forex realisation event 2 will not happen as your right to receive the Deferred Consideration will not be a relevant right within the terms of paragraph 775-45(1)(b) of the ITAA 1997.

Relevant facts and circumstances: Background • You are a national of a foreign country and do not hold any other citizenships. • Your spouse and children are all nationals of a foreign country and do not hold any other citizenships. • You and your family arrived in Australia many years ago and have resided in Australia since on temporary visas. • You have been on an assignment in Australia with a foreign company, Company A, since the year that you moved to Australia. • You have been a partner of Company A after you moved to Australia. • You owned some percentage of the share capital of Company A at the time of the sale transaction. • The foreign group was founded in a foreign country, and is a professional services company, with multiple offices around the globe. Partnership Background • Partnership B is an incorporated limited liability partnership formed in a foreign country. • Partnership B is treated as a body corporate and is therefore a separate legal entity in that foreign country. • Partnership B held 100% of the issued share capital of Company A. • Company A acts as the holding company of a trading group which undertakes the trading activities of the group's business globally. • Partnership B's only source of income was dividend income distributions received from Company A before the sale transaction. Sale Transaction • In the relevant financial year, a third party, foreign company, Company C, acquired certain percentage of equity interest in Company A from Partnership B, along with Company A's subsidiaries. • The sale was completed during the relevant financial year. • The purchase price was payable to the partnership by Company C 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 financial year. You have provided relevant clauses of your agreement which detail the obligations of the parties.

Relevant legislative provisions: Section 44 of the Income Tax Assessment Act 1936 | Section 102-5 of the Income Tax Assessment Act 1997 | Section 104-25 of the Income Tax Assessment Act 1997 | Section 106-5 of the Income Tax Assessment Act 1997 | Section 768-910 of the Income Tax Assessment Act 1997 | Section 768-955 of the Income Tax Assessment Act 1997 | Section 775-45 of the Income Tax Assessment Act 1997 | Division 830 of the Income Tax Assessment Act 1997 | Section 830-95 of the Income Tax Assessment Act 1997


Scenario: A foreign partnership, Partnership B, disposed of its equity interest foreign Company A during the relevant financial year, being the 'Sale Transaction'. | At the time of the Sale Transaction, you were a temporary resident for Australian tax purposes. You are, however, proposing to become a permanent resident for Australian tax purposes and make a foreign hybrid company election under Division 830 of the ITAA 1997 in relation to your interest in Partnership B in respect of the relevant financial year.