Income Tax Assessment Act 1997

CHAPTER 4 - INTERNATIONAL ASPECTS OF INCOME TAX  

PART 4-5 - GENERAL  

Division 880 - Sovereign entities and activities  

Subdivision 880-C - Sovereign immunity  

Operative provisions

SECTION 880-105   Sovereign entity ' s income from membership interest etc. in trust or company - non-assessable non-exempt income  

880-105(1)    
An amount of *ordinary income or *statutory income of a *sovereign entity is not assessable income and is not *exempt income if:

(a) the sovereign entity is covered by section 880-125 ; and

(b) the amount is a return on any of the following kinds of interest that the sovereign entity holds in another entity (the test entity ):

(i) a *membership interest;

(ii) a *debt interest;

(iii) a *non-share equity interest; and

(c) the test entity is:

(i) a company that is an Australian resident at the time (the income time ) when the amount becomes ordinary or statutory income of the sovereign entity; or

(ii) a *managed investment trust in relation to the income year in which the income time occurs; and

(d) the *sovereign entity group of which the sovereign entity is a member satisfies the portfolio interest test in subsection (4) in relation to the test entity:

(i) at the income time; and

(ii) throughout any 12 month period that began no earlier than 24 months before that time and ended no later than that time; and

(e) the sovereign entity group of which the sovereign entity is a member does not have influence of a kind described in subsection (6) in relation to the test entity at the income time.

880-105(2)    
For the purposes of paragraph (1)(b), treat an interest that a *sovereign entity holds in another entity as a partner in a *partnership as not being an interest that the sovereign entity holds in the other entity.

880-105(3)    
If the amount is a *fund payment, subsection (1) does not apply to the extent that the amount is attributable to:

(a) *non-concessional MIT income (see section 12-435 in Schedule 1 to the Taxation Administration Act 1953 ); or

(b) an amount that would be non-concessional MIT income if the following provisions were disregarded:

(i) subsection 12-437(5) in that Schedule;

(ii) sections 12-440 , 12-447 , 12-449 and 12-451 in that Schedule.

Portfolio interest test

880-105(4)    
A *sovereign entity group satisfies the portfolio interest test in this subsection in relation to the test entity at a time if, at that time, the sum of the *total participation interests that each *member of the group holds in the test entity:

(a) is less than 10%; and

(b) would be less than 10% if, in working out the *direct participation interest that any entity holds in a company:

(i) an *equity holder were treated as a shareholder; and

(ii) the total amount contributed to the company in respect of *non-share equity interests were included in the total paid-up share capital of the company.

880-105(5)    
For the purposes of subsection (4), in working out the sum of the *total participation interests held by each *member of the group in the test entity, take into account:

(a) a particular *direct participation interest; or

(b) a particular *indirect participation interest;

held in the entity only once if it would otherwise be counted more than once.

Influence test

880-105(6)    
A *sovereign entity group has influence of a kind described in this subsection in relation to the test entity at a time if any of the following requirements are satisfied at that time:

(a) a *member of the group:

(i) is directly or indirectly able to determine; or

(ii) in acting in concert with others, is directly or indirectly able to determine;

the identity of at least one of the persons who, individually or together with others, make (or might reasonably be expected to make) the decisions that comprise the control and direction of the test entity ' s operations;

(b) at least one of those persons is accustomed or obliged to act, or might reasonably be expected to act, in accordance with the directions, instructions or wishes of a member of the group (whether those directions, instructions or wishes are expressed directly or indirectly, or through the member acting in concert with others).

880-105(7)    
However, a *sovereign entity group does not have influence of a kind described in subsection (6) if, disregarding any breach of terms of a *debt interest by any entity, the sovereign entity group would not have influence of that kind.

880-105(8)    
For the purposes of subsection (6), in working out whether an entity is a *member of a *sovereign entity group, treat the references in paragraphs 880-20(1)(c) and (2)(c) to 100% as instead being references to more than 50%.