Private ruling: International Income - controlled foreign company - foreign hybrid
Date of advice: 9 October 2025
Published: 24 November 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will Company A, as a wholly owned entity of the Trust D, be classified as a Controlled Foreign Company (CFC) under section 340 of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. | Q2: If yes, is Company A a foreign hybrid company under Division 830 of the Income Tax Assessment Act 1997 (ITAA 1997), and therefore taxed as a partnership for income tax purposes? | A2: Yes. | Q3: Is Company A required to lodge partnership tax return under section 161 of the ITAA 1936? | A3: No. | Q4: Will CGT event A1 occur under section 104-10 of the ITAA 1997 when you transfer your shares in Company B to Company A? | A4: Yes.

Relevant facts and circumstances: On a specified date, you and 2 other shareholders established Company B in the Country A. You provided us with the following details about the shares in Company B: • the total number of shares • the value of each share • the number of shares you hold and their value • the number of shares and their value for the other 2 shareholders. You set up a single-member Limited Liability Company (LLC) (Company A) in Country A on a specified date, which you manage remotely from Australia. Company A will conduct investment activities only. For Country A tax purposes, Company A: • is not treated as a partnership. • has not elected to be treated as a corporation. • is a disregarded entity in Country A tax system as it is a pass-through entity. • does not pay Country A income taxes nor are they required to file a Country A tax return with the Revenue Service (RS). • will be disregarded for Country A tax purposes. The sole member of Company A is Company C Trust D. Trust D was established via Trust Deed on a specified date. You provided us with a copy of the Trust Deed. You and Person B are joint director and joint shareholder of Company C. The Trust Deed for Trust D detailed that you are the primary beneficiary. Trust D will receive income from Company A. Trust D is an Australian resident for tax purposes. The intention is for all dividends and proceeds from the sale of Company B shares to a third party in the future to be received by you as beneficiary of Trust D. Currently, there are no plans to sell the Company B shares held by Company A. Ownership of the shares is subject to Company B's right to repurchase all shares at the original purchase price within the first year. After the first anniversary of acquisition, a certain percentage of the shares vest and are no longer subject to repurchase by the company. The remaining shares will vest in equal monthly instalments over the subsequent period of months, spanning years two through four. Your shares in Company B were transferred from you to Company A on a specified date at the original price. You applied for a section 83(b) election in Country A on a specified date, meaning that Country A tax will be paid on the issue of the shares and the disposal of the shares only. There will be no tax paid on vesting. Company A was not required to file a section s83(b) election. You have applied for tax identification number (TIN) in t Country A on a specified date and obtaining a TIN typically takes 7 to 10 weeks in Country A. You work remotely for Company B as an employee. You are an Australian resident for tax purposes. You have been issued with a Withholding Payer Number (WPN) by the Australian Taxation Office.

Relevant legislative provisions: Income Tax Assessment Act 1936 paragraph 6(1)(b) | Income Tax Assessment Act 1936 section 91 | Income Tax Assessment Act 1936 section 161 | Income Tax Assessment Act 1936 section 161(1) | Income Tax Assessment Act 1936 section 340 | Income Tax Assessment Act 1936 paragraph 340(c) | Income Tax Assessment Act 1936 section 361 | Income Tax Assessment Act 1997 Division 6 | Income Tax Assessment Act 1997 subsection 6-5(2) | Income Tax Assessment Act 1997 subsection 6-5(3) | Income Tax Assessment Act 1997 subsection 6-10(5) | Income Tax Assessment Act 1997 subsection 104-10(1) | Income Tax Assessment Act 1997 subsection 104-10(2) | Income Tax Assessment Act 1997 subsection 104-10(3) | Income Tax Assessment Act 1997 subsection 108-5(1) | Income Tax Assessment Act 1997 Division 115 | Income Tax Assessment Act 1997 Division 830 | Income Tax Assessment Act 1997 section 830-1 | Income Tax Assessment Act 1997 section 830-5 | Income Tax Assessment Act 1997 subsection 830-10(1) | Income Tax Assessment Act 1997 subsection 830-15(1) | Income Tax Assessment Act 1997 paragraph 830-15(1)(a) | Income Tax Assessment Act 1997 paragraph 830-15(1)(b) | Income Tax Assessment Act 1997 paragraph 830-15(1)(c) | Income Tax Assessment Act 1997 subparagraph 830-15(1)(d)(i) | Income Tax Assessment Act 1997 subparagraph 830-15(1)(d)(ii) | Income Tax Assessment Act 1997 subsection 830-15(2) | Income Tax Assessment Act 1997 section 830-25 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Summary: Company A is a CFC under section 340 of the ITAA 1936 as it is a resident company in Country A, wholly owned by an Australian trust and does not carry on a business in Australia. | Detailed Reasoning - Detailed reasoning: Section 340 of the Income Tax Assessment Act 1936 (ITAA 1936) states: A company is a CFC at a particular time if, at that time, the company is a resident of a listed country or of an unlisted country and any of the following paragraphs applies: (a) at that time, there is a group of 5 or fewer Australian 1% entities the aggregate of whose associate-inclusive control interests in the company is not less than 50%; (b) both of the following subparagraphs apply: (i) at that time, there is a single Australian entity (in this paragraph called the assumed controller) whose associate-inclusive control interest in the company is not less than 40%; (ii) at that time, the company is not controlled by a group of entities not being or including the assumed controller or any of its associates; (c) at that time, the company is controlled by a group of 5 or fewer Australian entities, either alone or together with associates (whether or not any associate is also an Australian entity). Listed country Schedule 10 of the Income Tax Regulations 1936 specifies the countries that are listed countries. The countries that are listed countries are Canada, France, Germany, Japan, New Zealand, United Kingdom of Great Britain and Northern Ireland and the United States of America. Company Subsection 995-1(1) of the ITAA 1997 defines a company as being either a body corporate or any other unincorporated association body or persons. A company is not a partnership or a non-entity joint venture. Body corporate The ATO in MT 2006/1 The New Tax System: the meaning of entity carrying on an enterprise for the purposes of entitlement to an Australian Business Number (MT 2006/1) defines 'body corporate' in the context of GST as: 'Body corporate' is not a defined term. The term takes its meaning from the general law. 'Body corporate' is a general term to describe an artificial entity having a separate legal existence. A body corporate has the ability to continue in existence indefinitely and to keep its identity regardless of changes to its membership. It also has the power to act, hold property, enter into legal contracts, sue and be sued in its own name, just as a natural person can. Country A LLC The RS states that an LLC with only one member: is treated as an entity disregarded as separate for its owner, unless it files Form 8832 and elects to be treated as a corporation. The powers of an LLC are: Unless otherwise provided by law or its articles of organization, a limited liability company has the general powers, whether or not set forth in its articles of the organization to: (1) Have perpetual existence, although existence may be limited to a specified period time if the limitation is set forth in its articles of organization; (2) Sue, be sued, complain, and defend in all courts; (3) Transact its business, carry on its operations, and have and exercise the powers granted by this article in any state and in any foreign country; (4) Make contracts and guarantees, incur liabilities, and borrow money; (5) Sell, lease, exchange, transfer, convey, mortgage, pledge, and otherwise dispose of any of its assets; (6) Acquire by purchaser or in any other manner, take, receive, own, hold, improve, and otherwise deal with any interest in real or personal property, wherever located; [...] (16) Cease its activities and dissolve; and (17) Do every other act not inconsistent with law which is appropriate to promote and attain the purposes set forth in its articles of organization. Additionally, the members of the LLC are not held personally liable due to their status as members of the LLC and assignment of interests in the LLC does not dissolve the LLC. These elements are characteristics of an incorporated structure. Paragraph 9.29 of the explanatory memorandum of the Taxation Laws Amendment Act (No. 1) 2004 explains that Country A LLCs are clearly companies under Australian tax law. Australian resident company Under paragraph 6(1)(b) of the ITAA 1936 defines a company as an Australian resident as company which is incorporated in Australia, or which, not being incorporated in Australia, carries on business in Australia, and has either its central management and control in Australia, or its voting power controlled by shareholders who are residents of Australia. Application to your circumstances Company A is a CFC for the following reasons: • Company A is a resident of Country A, which is a listed country. • Company A is a separate legal entity and legally a body corporate. Therefore, it is a company as defined in section 995-1 of the ITAA 1997. • Trust D is an Australian trust which owns 100% of the shares in Company A • Company A conducts investment activities only and does not carry on a business in Australia, therefore they are not a resident of Australia. | Detailed Reasoning - Question 2: If yes, is Company A a foreign hybrid company under Division 830 of the ITAA 1997, and therefore taxed as a partnership for income tax purposes? | Summary: Company A is a foreign hybrid company and will be treated as a partnership under section 830-20 of the ITAA 1997. The partners in the partnership are the shareholders of the company, which includes a member of a Country A LLC. Company A is treated as a partnership and Trust D is treated as a partner in the partnership. | Detailed Reasoning - Detailed reasoning: Division 830 of the ITAA 1997 provides for foreign hybrids, that are treated as flow-through entities for the purposes of foreign tax, but treated as companies for Australian income tax purposes, to be treated as partnerships for the purposes of the Acts (section 830-1 of the ITAA 1997). The expression 'foreign hybrid' is defined in section 830-5 of the ITAA 1997 to mean a foreign hybrid limit partnership or a foreign hybrid company. An LLC is a legal entity formed under Country A state laws that provided limited liability protection to its owners and allows pass-through taxation. The definition of a limited partnership is subsection 995-1(1) of the ITAA 1997 excludes a company. Based on the definition in subsection 995-1(1) of the ITAA 1997, a Country A LLC is not a limited partnership within the meaning of subsection 830-10(1) of the ITAA 1997. Paragraphs 830-15(1)(a) to (d) of the ITAA 1997 sets out the following requirements for a company to qualify as a foreign hybrid company: (a) at all times during the income year when the company is in existence, the partnership treatment requirements for the income year in subsection 2 or 3 satisfied; and (b) at no time during the income year is the company, for the purposes of a law of any foreign country that imposes * foreign income tax on entities because they are residents of the foreign country, a resident of that country; and (c) at no time during the income year is the company an Australian resident; and (d) disregarding this Division, in relation to the same income year of another taxpayer: (i) the company is a CFC at the end of a statutory accounting period that ends in the income year; and (ii) at the end of the statutory accounting period, the taxpayer is an attributable taxpayer in relation to the CFC with an attribution percentage greater than nil. Subsection 830-15(2) of the ITAA 1997 states: For the purposes of paragraph (1)(a), the partnership treatment requirements are satisfied if: (a) the company was formed in the Country A; and (b) for the purposes of the law of that country relating to foreign income tax (except credit absorption tax or unitary tax) imposed by that country, the company is a limited liability company that: (i) is treated as a partnership; or (ii) is an eligible entity that is disregarded as an entity separate from its owner. Section 361 of the ITAA 1936 defines an attributable taxpayer as follows: (1) An entity (in this subsection called the test entity) is an attributable taxpayer in relation to a CFC at a particular time if, at that time: (a) the test entity is an Australian entity whose associate - inclusive control interest in the CFC is at least 10%; or (b) all the following subparagraphs apply: (i) the CFC is a CFC at that time only because of paragraph 340(c); (ii) the CFC is controlled by any group of 5 or fewer Australian entities, either alone or together with associates (whether or not any associate is also an Australian entity); (iii) the test entity is an Australian 1% entity and is included in that group of 5 or fewer Australian entities. (2) An entity (in this subsection called the test entity) is an attributable taxpayer in relation to a CFT at a particular time if, at that time, the test entity is an Australian entity whose associate - inclusive control interest in the CFT is at least 10%. The view in ATO ID 2010/77 Income tax: Foreign hybrid company: US Limited Liability Company (ATO ID 2010/77) is that a single member US LLC can be a foreign hybrid company under Division 830 of the ITAA 1997 and is therefore treated as a partnership for income tax purpose. Application to your circumstances Company A satisfies the above condition because: • Paragraph 830-15(1)(a) satisfied - Company A was formed in Country A. Company A has not elected to be treated as a corporation and it is treated as an eligible entity separate for its owner for Country A tax purposes. • Paragraph 830-15(1)(b) satisfied - at no time during the income year is Company A a resident of a foreign country for the purposes of a law of that country that imposes foreign income tax on entity's because they are residents of the country. • Paragraph 830-15(1)(c) satisfied - is not an Australian resident at any time during the income year. • Paragraph 830-15(1)(d)(i) satisfied - Company A is a CFC at the end of the income year (as per question 1) • Paragraph 830-15(1)(d)(ii) satisfied - Trust D is an attributable taxpayer with an attribution percentage of 100%. Trust D has 100% direct control interest and 100% direct attribution interest in Company A. Having satisfied section 830-15(1) of the ITAA 1997, Company A is a foreign hybrid company and will be treated as a partnership under section 830-20 of the ITAA 1997. The partners in the partnership are the shareholders of the company, which includes a member of a Country A LLC. Company A is treated as a partnership and Trust D is treated as a partner in the partnership. | Detailed Reasoning - Question 3: Is Company A required to lodge partnership tax return under section 161 of the ITAA 1936? | Summary: Company A will not be required to lodge partnership tax return in Australia as it is a non-resident for taxation purposes and did not derive any income from Australian sources. | Detailed Reasoning - Detailed reasoning: Subsection 161 of the ITAA 1936 requires that every person must, when directed by the Commissioner through a legislative instrument, must lodge a return for a year of income within the timeframe specified in that instrument. Each year the Commissioner publishes, in accordance with subsection 161(1) of the ITAA 1936, a legislative instrument that requires every person prescribed in the relevant tables in the instrument to give a return for the year of income. A non-resident resident taxpayer is required to lodge a tax return if at any time during the year of income the taxpayer derived income (including capital gains) that is taxable in Australia other than dividend, interest or royalty income subject to withholding payments. This is described in legislative instrument LI 2025/6 ((6)(3)(b)), requiring lodgment of returns for the 2024-25 income year. Division 6 of the ITAA 1997 contains the fundamental rules that a resident of Australia is generally assessable on their worldwide income, while a non-resident is generally assessable only on income from Australian sources. Subsection 6-5(3) of the ITAA 1997 provides that the assessable income of a non-resident taxpayer includes ordinary income that is sourced directly or indirectly from all Australian sources during the financial year. Subsection 6-10(5) of the ITAA 1997 provides that assessable income of a non-resident taxpayer includes all statutory income from all Australian sources. A non-resident of Australia is not required to lodge a tax return in Australia unless they have income derived from Australian sources during the income year. Application to your circumstances As Company A is considered to be a non-resident of Australia for taxation purposes, and has not derived any ordinary income or statutory income from Australian sources in the specified income year. Therefore, Company A is not required to lodge a tax return in Australia for the specified income year. However any income or capital distribution that an Australian resident taxpayer receives (for example: Trust D and you) will be assessable to them in Australia. | Detailed Reasoning - Question 4: Will CGT event A1 occur under section 104-10 of the ITAA 1997 when you transfer your shares in Company B to Company A? | Summary: You are not absolutely entitled to the Company B shares as under the Trust Deed you are not the sole beneficiary, therefore you cannot be treated as having beneficial ownership of the Company B shares when they were transferred to Company A. Therefore, when the Company B shares were transferred from you to Company A CGT event A1 was triggered. | Detailed Reasoning - Detailed reasoning: Subsection 108-5(1) of the ITAA 1997 states that a CGT asset is any kind of property or a legal or equitable right that is not property. Note 1 of section 108-5 lists a number of examples of CGT assets, including the shares in a company. CGT event A1 happens to an entity if it disposes of a CGT asset: subsection 104-10(1). The entity disposes of the asset if there is a change of ownership of the asset from the entity to another entity. Merely ceasing to be the legal owner is insufficient - there must be a change in beneficial ownership: subsection 104-10(2). The time of the event is when the entity enters into the contract for the disposal, or if there is no contract, when the change of ownership occurs: subsection 104-10(3). Accordingly, when applying the CGT provisions on the transfer of shares, ownership must be considered. It must be determined who had beneficial ownership of the shares. To establish occasions where legal and beneficial ownership are not the same, there needs to be evidence to rebut the standard presumption that legal and equitable interests are the same. In the case of a discretionary trust, the beneficiary of the trust would need to be absolutely entitled to the asset against the trustee. Draft Taxation Ruling TR 2004/D25 Income tax: meaning of the words 'absolutely entitled to a CGT asset as against the trustee of a trust' as used in Part 3-1 and 3-3 of the Income Tax Assessment Act 1997 (TR 2004/D25), examines the meaning of the words 'absolutely entitled to a CGT asset against the trustee of a trust'. The core principle underpinning the concept of absolute entitlement in the CGT provisions is the ability of the beneficiary, who has a vested and indefeasible interest in the entire trust asset, to call for the asset to be transferred to them or to be transferred at their direction ... A vested interest is one that is bound to take effect in possession at some time and is not contingent upon an event occurring that may or may not take place. A beneficiary's interest in an asset is vested in possession if they have the right to immediate possession or enjoyment of it. Also, the interest must not be able to be defeated by the actions of any person or the occurrence of any subsequent event... A beneficiary is a sole beneficiary in respect of a trust asset if no other beneficiary has an interest in the asset (even if the trust has other beneficiaries). Because a sole beneficiary in respect of an asset has the totality of the beneficial interests in the asset, they automatically satisfy the requirement ... that their interest in the asset be vested in possession and indefeasible. Therefore, a sole beneficiary in respect of a trust asset will be absolutely entitled to the asset as against the trustee if the beneficiary can (ignoring any legal disability) terminate the trust in respect of the asset by directing the trustee to transfer the asset to them or to transfer it at their direction. Application to your circumstances Under the Trust Deed, you are noted as being the primary beneficiary of the Trust, but you are not the sole beneficiary. The Trust Deed makes reference to the distribution of the Trust's capital being distributed to one or more of the beneficiaries. Therefore, you are not absolutely entitled to the shares and cannot be treated as having beneficial ownership while they are not legally owned by you. Therefore, when the Company B shares were transferred from you to Company A CGT event A1 was triggered.

Will Company A, as a wholly owned entity of the Trust D, be classified as a Controlled Foreign Company (CFC) under section 340 of the ITAA 1936?