Private ruling: Foreign sourced income
Date of advice: 20 October 2015
Published: October 2015
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020
Date scheme commenced: 1 July 2013

Ruling: Question and Answer | Are the profits from a related foreign hybrid company whose shareholder is an Australian resident trust, to be included in your income where no trust distribution is made? | No

Relevant facts and circumstances: You are the beneficiary of a trust. The trust owns 100% of the shares in Foreign Company#1 Foreign Company#1 owns 100% of the shares in Foreign Company#2 Foreign Company#2 owns a rental property outside Australia. The appropriate entity has reported an income in its relevant taxation jurisdiction. The shares of Foreign Company#2 are owned by a trust to which you are a beneficiary.

Relevant legislative provisions: Section 6-5 of the Income Tax Assessment Act 1997 | Section 6-10 of the Income Tax Assessment Act 1997 | Section 15-2 of the Income Tax Assessment Act 1997 | Section 830-15 of the Income Tax Assessment Act 1997 | Summary | A foreign hybrid company is a foreign company which is taxed as an ordinary partnership, where using a flow-through method the shareholders and not the company are taxed. | The criteria for determining whether a company is a foreign hybrid company for Div 830 of the Income Tax Assessment Act 1997 purposes are set out in section 830-15 of the ITAA 1997. The provisions contain a general rule which applies to all foreign companies. Foreign hybrids | The effect of section 830-20 of the ITAA 1997, is that the specified income tax provisions apply 'as if' the hybrid company were a (tax law) partnership; that is, the section has the purpose of applying a method of taxation in respect of foreign hybrid companies. | Thus, section 830-20 of the ITAA 1997 does not deem the hybrid company and its shareholders to have all the characteristics and relationships of a general law partnership. | In your circumstances the hybrid companies will be treated as partnerships and therefore the trust is treated as a partner and net losses or income are included as trusts income or loss. | While section 830-15 of the ITAA 1997 operates to make the income of the company the income of the trust, it does not mean the trust must distribute the income. Consequently, it does make the income assessable to the trust. | The effect of the division is to treat the trust as the partner therefore the net loss becomes the trust's loss. Until the loss is recouped, the trust will have no distributable income. When it does the normal trust rules apply | This means that when the trust has net income it will be assessable to either the trustee if not distributed or to the beneficiary if distributed.