New International Tax Arrangements (Managed Funds and Other Measures) Act 2005 (21 of 2005)

Schedule 1   CGT and foreign residents

Income Tax Assessment Act 1997

6   At the end of Division 768

Add:

Subdivision 768-H - Capital gains and losses of foreign residents through fixed trusts

Table of sections

768-600 Purpose of this Subdivision

768-605 Effect of capital gain or loss from underlying fixed trust assets

768-610 Conditions

768-615 Foreign resident companies

768-600 Purpose of this Subdivision

The purpose of this Subdivision is to provide comparable taxation treatment as between direct ownership, and indirect ownership through a *fixed trust, by foreign residents of *CGT assets not having the *necessary connection with Australia.

768-605 Effect of capital gain or loss from underlying fixed trust assets

(1) A *capital gain or *capital loss you make from a *CGT event happening to your interest in a *fixed trust is disregarded if:

(a) you are a foreign resident at the time of the CGT event; and

(b) your interest has the *necessary connection with Australia at that time; and

(c) the conditions in section 768-610 are satisfied.

(2) A *capital gain you make in respect of your interest in a *fixed trust is disregarded if:

(a) you are a foreign resident when you make the gain; and

(b) the gain is attributable to a *CGT event happening to a *CGT asset of that trust or of another fixed trust in which that trust has an interest (directly, or indirectly through a *chain of fixed trusts); and

(c) either:

(i) the asset does not have the *necessary connection with Australia at the time of the CGT event; or

(ii) the asset is an interest in a fixed trust and the conditions in section 768-610 are satisfied.

Note: Section 115-215 treats a portion of a trust's capital gain as a capital gain made by a beneficiary, and applies the CGT discount to that portion as if the gain were made directly by the beneficiary.

(3) You are not liable to pay tax as a trustee of a *fixed trust in respect of an amount to the extent that:

(a) the amount gives rise to a *capital gain that is disregarded for a beneficiary under subsection (2); or

(b) the amount gives rise to a deduction for a beneficiary under section 768-615.

(4) To avoid doubt, subsection (3) does not affect the operation of subsection 98A(1) of the Income Tax Assessment Act 1936 (about taxing beneficiaries who are foreign residents at the end of an income year).

768-610 Conditions

(1) The conditions in this section must be satisfied if the relevant *CGT event happens to an interest in a *fixed trust (the first trust ) and the interest has the *necessary connection with Australia at the time of the CGT event.

(2) At least 90% (by *market value) of the *CGT assets of:

(a) the first trust; or

(b) a *fixed trust in which the first trust has an interest (directly, or indirectly through a *chain of fixed trusts);

must not have the *necessary connection with Australia at the time of the relevant *CGT event.

(3) If the condition in subsection (2) is not satisfied for the first trust (but is satisfied for a trust covered by paragraph (2)(b)), the condition in subsection (4) must be satisfied for the first trust, and for each other trust in the *chain of trusts between the first trust and the trust that satisfied the condition in subsection (2).

(4) The condition is that, assuming any interest in a *fixed trust in that *chain not to have the *necessary connection with Australia, at least 90% (by *market value) of the *CGT assets of the trust must not have the necessary connection with Australia.

768-615 Foreign resident companies

If a company's assessable income for an income year includes an amount under subsection 98A(1) of the Income Tax Assessment Act 1936 because it is a beneficiary described in subsection 98(3) of that Act, the company can deduct for the income year the amount of a *capital gain that would be disregarded for it under this Subdivision for that year had section 115-215 of this Act applied to it for that year.

Note 1: Section 98A of the Income Tax Assessment Act 1936 deals with taxing beneficiaries who are foreign residents at the end of an income year.

Note 2: Subsection 98(3) of that Act makes the trustee liable for tax on the share of the income of the trust to which a foreign resident company is presently entitled.

Note 3: Section 115-215 treats a portion of a trust's capital gain as a capital gain made by a beneficiary, and applies the CGT discount to that portion as if the gain were made directly by the beneficiary.