Private ruling: International issues - foreign partnership
Date of advice: 18 May 2023
Published: 3 July 2023
Ruling period: Year ended 30 June 20XX to year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Where a foreign hybrid company election has not been made, is the Deferred Consideration you received in respect of the Sales Transaction at the specified dates treated as a dividend under Section 44 of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. As you have not made a foreign hybrid company election the Deferred Considerations payment you will receive at the specified dates will be treated as a dividend paid to a shareholder by the company in accordance with Section 44 of the ITAA 1936. | Q2: When you depart Australia after the specified date and you become a non-resident of Australia for tax purposes, will the Deferred Consideration payments received at the specified dates as a non-resident of Australia be considered non-assessable non-exempt (NANE) income? | A2: Yes. As you will be a non-resident of Australia for tax purposes at the time that the Deferred Considerations payments are received the dividend income will be considered NANE.

Relevant facts and circumstances: Background • You are an Australian tax resident and you were an Australian tax resident at the time of the Initial payment. • You have been a partner of Partnership A since a specified date. You are not a Board Member of Partnership A. • You owned a specified percentage of the share capital of Partnership A at the time of the sale transaction. • You will retire from Partnership A on a specified date and you intend to move overseas. Partnership Background • Partnership A is an incorporated limited liability partnership formed in a foreign country. • Partnership A is treated as a body corporate and is therefore a separate legal entity in that foreign country. • Partnership A held 100% of the issued share capital of Company B. • Company B acts as the holding company of a trading group (Group C) which undertakes the trading activities of the group's business globally. • Partnership A's only source of income was dividend income distributions received from Company B before the sale transaction. • The Foreign Group C was founded in a foreign country, and they are now a world-leading professional services company, with multiple offices around the globe. The Group C offers independent advice for its clients across multiple industries. Sale Transaction • In the relevant income year, a third party, foreign company, Company D, acquired specified percentage of equity interest in Company B from Partnership A, along with Company B's subsidiaries. • The sale was completed during the relevant income year. • The purchase price was payable to the partnership A by Company D 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 income year. You have provided relevant clauses of your agreement which detail the obligations of the parties.

Relevant legislative provisions: Section 44 Income Tax Assessment Act 1936 | Subsection 6-5(3) Income Tax Assessment Act 1997 | Subsection 995-1(1) Income Tax Assessment Act 1997


Assumption: You will not make a foreign hybrid company election under Division 830 of the ITAA 1997 in relation to your interest in the T&T LLP. | You will move overseas after a specified date and will be a non-resident of Australia at the time that the Deferred Consideration payments are paid to you.