Private ruling: Commissioner's discretion under subsection 102AAZD(3) of the Income Tax Assessment Act 1936
Date of advice: 14 July 2016
Published: August 2016
Ruling period: 30 June 2017 to 30 June 2019
Date scheme commenced: Year ended 30 June 200X

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 102AAZD(3) of the Income Tax Assessment Act 1936 ( ITAA 1936) to reduce the attributable income of the employee benefit trust? | A1: Yes

Relevant facts and circumstances: EmployerCo and other companies (the Employer companies) are Controlled Foreign Companies (CFCs) of AusCo, an Australian resident entity. All the income derived by the Employer companies is foreign sourced. EmployerCo established an incentive plan under an employee benefit trust (EBT) (the scheme). The Employer companies contribute to the EBT in respect of their participating employees (employee beneficiaries). AusCo does not control the EBT and has not transferred indirectly or directly any funds into the EBT and is not involved in the scheme. Neither AusCo nor any of its controlled entities benefit from the EBT. The employee beneficiaries are foreign residents and employees of the Employer companies. Any income or profits derived by the EBT are for the benefit of the non-resident employee beneficiaries of the EBT. The EBT makes distributions to employees of the CFCs that are nominated beneficiaries of the EBT. The non-resident employee beneficiaries pay their relevant share of tax to the relevant tax jurisdictions of those beneficiaries.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 102AAZD(3) | Income Tax Assessment Act 1936 section 383 | Income Tax Assessment Act 1936 paragraph 384(2)(b) | Income Tax Assessment Act 1936 paragraph 385(2)(b)

Reasons for decision: Summary: The Commissioner will exercise his discretion under subsection 102AAZD(3) of the ITAA 1936 to reduce the attributable income of the EBT. | Detailed Reasoning - Detailed reasoning: The Commissioner will exercise his discretion for the following reasons: • In the absence of section 383, paragraph 384(2)(b) or paragraph 385(2)(b) of the ITAA 1936, the transferor trust rules would not have any indirect application to AusCo. • But for the application of the CFC rules to AusCo all the entities involved in the scheme are non-residents and all income derived by the entities is foreign sourced. • No mischief arises from these facts in terms of any potential abuse of the CFC rules.