Private ruling: Temporary resident status - distribution from non-resident trust
Published: August 2011
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2010

Ruling: 1. Will you be treated as a temporary resident of Australia for tax purposes? | Yes | 2. Will you be assessable in Australia on income from foreign sources | No | 3. Will income derived by the Foundation to which you are presently entitled which is non-Australian sourced, be excluded from your assessable income in Australia? | Yes | 4. Will you be assessable in Australia on any non-Australian sourced distribution of trust capital from the Foundation? | No

Relevant facts and circumstances: You are a citizen of Country A. You have been a permanent resident of Country B for many years. You have never been an Australian citizen. You have recently been granted a temporary resident visa. The visa is granted under the Migration Act 1958 . Your spouse will accompany you to Australia each year when you come here. You intend to live in Australia for at least 6 months of each year. You have so far been a non-resident of Australia for tax purposes. You have been visiting Australia on a tourist visa for many years. You now wish to live in Australia under a temporary visa rather than on a tourist visa. Your spouse has never been an Australian citizen or Australian resident for tax purposes. Your spouse is a citizen and permanent resident of Country B, as well as the holder of a Country A passport. None of your children live in Australia. You do not derive employment income or income from the provision of services. You have not lodged tax returns in Australia as you have not derived income from Australian sources. You will have investments in Australia as required under the visa. You do not intend to apply for permanent residency in Australia. You wish to renew your temporary visa periodically. You are not an Australia resident within the meaning of the Social Security Act 1991. Your spouse is not an Australia resident within the meaning of the Social Security Act 1991. You are a resident of Australia for tax purposes. You are the only beneficiary of a non-resident trust known as the Foundation with the following features: · The Foundation was set up in a foreign country (Country C). · The initial capital amount being a foreign currency amount was contributed to the Foundation by you as an unconditional gift. · You have no role to play in the management of the Foundation or in the conduct of the investment activities. · A Foundation board was appointed; you are not a member of the Board. The board members are professionals and are based in Country C. · In the event of your death, your spouse will be the beneficiary, and on their death, your children will become equal beneficiaries. · The assets of the Foundation are held overseas, with the exception of some shares held in an Australian mining company. · The other assets of the Foundation are predominantly Australian currency denominated from deposits held in foreign banks. The management and control of these assets is with the private foreign bank. · During your lifetime you have all claims on the assets of the Foundation and on earnings derived. You have the power to dispose of your entitlement. · The trust capital consists of the original gift made by you plus any income derived by the Foundation to which you are not presently entitled.


Reasons for decision: Detailed Reasoning - Temporary residents: Subsection 995-1(1) of Income Tax Assessment Act 1997 (ITAA 1997) provides that a taxpayer is a temporary resident if: · they hold a temporary visa granted under the Migration Act 1958 · they are not an Australian resident within the meaning of the Social Security Act 1991 , and · their spouse is not an Australian resident within the meaning of the Social Security Act 1991 . Under the Social Security Act 1991 , an Australian resident is a person who resides in Australia and is either an Australian citizen or holds a permanent resident visa. In your case, · you hold a temporary visa granted under the Migration Act 1958 · neither you nor your spouse are Australian residents within the meaning of the Social Security Act 1991 because you are not Australian citizens or holder of permanent resident visas. As you satisfy the conditions for a temporary resident as defined in subsection 995-1(1) of the ITAA 1997, you are considered to be a temporary resident for taxation purposes. | Detailed Reasoning - Assessability of income from foreign sources: From 1 July 2006, taxpayers considered to be temporary residents do not have to pay tax in Australia on most of their foreign income. Subsection 6-15(3) of the ITAA 1997 provides that if an amount is non-assessable non-exempt income, it is not assessable income. Under section 768-910 of the ITAA 1997 ordinary income and statutory income (excluding employment related income and capital gains on shares and rights acquired under employee share schemes) from a source other than an Australian source derived while a taxpayer is a temporary resident is non-assessable non-exempt income. In your case any income you earn from foreign sources, excluding employment related income and capital gains on shares and rights acquired under an employee share scheme, will not be assessable in Australia. | Detailed Reasoning - Distribution of foreign income to which you are presently entitled from a non-resident trust: You are a beneficiary of a non-resident trust called the Foundation which earns mainly foreign sourced income. Income derived by the Foundation which has a non-Australian source is non-assessable non-exempt income. The treatment of temporary resident income as non-assessable non-exempt income extends to amounts derived by a temporary resident through a partnership or trust. Thus distributions of income made by the Foundation also have a non-Australian source and accordingly are non-assessable non-exempt income under section 798-910 of the ITAA 1997. Subsection 6B(2A) of the Income Tax Assessment Act 1936 (ITAA 1936) deems income beneficially derived by a person (including where the person derived the amount of income as a beneficiary in a trust estate) to be derived from the source to which the income can be directly or indirectly attributed. Further, an amount of trust income distributed by a trustee to a beneficiary retains the character it had when it was derived by the trustee, unless a provision of the trust deed or of any relevant statute provides otherwise. It follows that the distribution of non-Australian sourced income retains it character as non-Australian sourced income when distributed to you. The income to which you are presently entitled, remains non-assessable, non-exempt income in your hands, and is thus not assessable to you in Australia. Similarly, a distribution consisting of Australian sourced income retains its character as Australian sourced income when it is distributed to a taxpayer. It follows that a distribution of Australian sourced income by a foreign trust remains assessable income of the taxpayer. In other words, the exemption in section 768-910 of the ITAA 1997 does not apply to trust income paid by a non-resident trust to a temporary resident that is Australian sourced. In your case any distribution of Australian sourced income from the Foundation, being a foreign trust, will be assessable to you. Part of the assets of the Foundation includes shares held in an Australian mining company. As any distribution pertaining to income from these shares will be sourced in Australia, you will be assessable on any income or capital from these shares. | Detailed Reasoning - Distribution of non-Australian sourced capital from a non-resident trust: A capital gain or loss made by a taxpayer who is a temporary resident when they dispose of a capital asset will be disregarded if the asset is not taxable Australian property under section 768-915 of the ITAA 1997. In your case the foreign sourced capital of the Foundation consists of the original capital plus any income to which no beneficiary was presently entitled, which was not sourced in Australia. Any capital gain or capital loss you make from the disposal of your foreign assets not being taxable Australian property is disregarded under section 768-915 of the ITAA 1997. Accordingly your foreign sourced income is not included in your assessable income in Australia. You will not be assessable in Australia on any non-Australian sourced distributions of trust capital from the Foundation.

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