Private ruling: Part IVA
Published: March 2014
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is there a tax benefit that arises under the scheme for the year ended 30 June 20YY to for the purposes of Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: No.

Relevant facts and circumstances: For Australian tax purposes the taxpayer is a temporary resident for the purposes of subdivision 768-R of the Income Tax Assessment Act 1997 (ITAA 1997). The taxpayer will be a temporary resident at all times during the period 1 July 20XX to 30 June 20YY. The taxpayer has applied for a permanent resident visa and it is expected this will be received after 1 July 20YY. The Trust is a non-resident trust. The taxpayer is a beneficiary of the Trust The trustee is an independent non-resident corporate trustee. The trustee has absolute control of the Trust and all administrative and investment decisions are undertaken by the trustee. The Trust is a non-resident for Australian tax purposes. The Trust deed allows for additional beneficiaries to be added, which may include a company. The corpus of the Trust is comprised of foreign sourced capitalised profits and capital introduced by the taxpayer. Neither the trust nor the company derives (directly or indirectly) any income or payments connected with Australia, such as investments in Australian companies or other Australian investments, for services provided to Australian residents or payments received in respect of intellectual property fees paid on behalf of Australian residents. It has been the administrative practice of the trustee to make distributions out of trust corpus to the taxpayer with the distributions being sourced solely from the capital introduced (as opposed to capitalised profits that also form part of corpus) by the taxpayer since settlement of the trust. There is nothing to suggest that the trustee will deviate from this practice. For asset protection and estate planning reasons, the taxpayer has decided to incorporate a new non-resident company which will be owned by an Australian discretionary trust which will be controlled by the taxpayer. He/she will ask the trustee of the Trust to consider the following: a. to add the new company to the class of eligible beneficiaries; and b. resolve to distribute an amount from the trust corpus to the new company which may be sourced from either the original capital introduced or the capitalised income of the trust. The new company may pay or declare a dividend to the shareholder which may be distributed to the taxpayer and which will be used to fund non-concessional superannuation contributions and living expenses if the taxpayers receive a permanent residency visa to allow them to reside indefinitely in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 - Section 177A | Income Tax Assessment Act 1936 - Section 177C | Income Tax Assessment Act 1936 - Section 177D | Income Tax Assessment Act 1936 - Section 177F | Income Tax Assessment Act 1997 - Section 768-910

Reasons for decision: Summary: Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) is a general anti-avoidance provision that can apply in certain circumstances. Part IVA gives the Commissioner the power to cancel a 'tax benefit' (or part of a 'tax benefit') that has been obtained, or would, but for section 177F of the ITAA 1936, be obtained, by a taxpayer in connection with a scheme to which Part IVA applies. In broad terms, Part IVA will apply where the following requirements are satisfied: • there is a scheme (see section 177A); • a taxpayer has obtained, or would but for section 177F obtain, a tax benefit in connection with the scheme (see section 177C); and • the dominant purpose of a person who entered into or carried out the scheme, or any part of the scheme, was to enable the relevant taxpayer to obtain a tax benefit in connection with the scheme, or to enable the relevant taxpayer and another taxpayer or other taxpayers each to obtain a tax benefit in connection with the scheme (paragraph 177D(b)). The application of Part IVA depends on a careful weighing of all the relevant facts and surrounding circumstances of each case. Section 768-910 of the ITAA 1997 provides that both the ordinary and statutory income derived by a temporary resident, directly or indirectly, from a non-Australian source is non-assessable non-exempt income. In this case, the taxpayer will be a temporary resident for Australian taxation purposes at all times during in the 20XX-YY income year and the capitalised profits of the trust are foreign sourced. Accordingly, any distributions of capitalised profits received either directly or indirectly by the taxpayer in the 20XX-YY income year will be treated as non-assessable non-exempt income. | Detailed Reasoning - Application of Part IVA: What you are proposing is a 'scheme' capable of attracting the operation of Part IVA. However, there is no identifiable tax benefit obtained from the scheme. Therefore, Part IVA will not apply to this arrangement.