Taxation Laws Amendment Act (No. 2) 1999 (93 of 1999)
Schedule 1 Australia as a regional financial centre
Part 2 Foreign Investment Funds
Income Tax Assessment Act 1936
42 After Division 7 of Part XI
Insert:
Division 8 - Exemption for interests in certain US entities
512 Object of Division
The object of this Division is to exempt a taxpayer from taxation under this Part in respect of foreign investment fund income that would otherwise be taken to accrue from interests in certain entities that are subject to tax in the United States of America.
512A Division does not apply to interests in CFTs
This Division does not apply in relation to an interest in a CFT.
513 Exemptions
(1) The operative provision does not apply to a taxpayer in respect of an interest in:
(a) an entity that is treated as a corporation, and is subject to tax on its worldwide income, under the Internal Revenue Code of 1986 of the United States of America; or
(b) a company or trust that is treated as a regulated investment company, or a real estate investment trust, for the purposes of the Internal Revenue Code of 1986 of the United States of America.
(2) The operative provision does not apply to a taxpayer in respect of an interest in one of the following entities if the conditions in subsection (3) or (4) are satisfied:
(a) an entity that is a limited partnership, or a limited liability company under a law of the United States of America or a law of a State of the United States of America;
(b) an entity that is treated as a common trust fund for the purposes of the Internal Revenue Code of 1986 of the United States of America.
(3) The condition in this subsection is that the taxpayer satisfies the Commissioner that:
(a) the interest that the taxpayer holds at the end of the entity's notional accounting period is held for the sole purpose of investing directly, or indirectly through one or more interposed entities, in:
(i) a business conducted in the United States of America; or
(ii) real property located in the United States of America; and
(b) the entity does not directly, or indirectly through one or more interposed entities (other than through an entity covered by paragraph (1)(a) or (b)):
(i) have an interest in income or gains derived from sources outside of the United States of America; or
(ii) hold an interest in a FIF that is not resident in the United States of America; or
(iii) hold real property that is not located in the United States of America.
(4) The condition in this subsection is that the taxpayer satisfies the Commissioner that:
(a) the interest that the taxpayer holds at the end of the entity's notional accounting period is held for the sole purpose of investing directly, or indirectly through one or more interposed entities, in:
(i) a business conducted in the United States of America; or
(ii) real property located in the United States of America; and
(b) throughout the entity's notional accounting period, the total value of:
(i) any interests that the entity has in income or gains derived from sources outside the United States of America; and
(ii) any interests that the entity has in FIFs that are not resident in the United States of America; and
(iii) any real property held by the entity that is not located in the United States of America;
being interests or real property that the entity has or holds directly, or indirectly through one or more interposed entities (other than through an entity covered by paragraph (1)(a) or (b)), does not exceed 5% of the total value of all interests held by the entity in other entities; and
(c) throughout the entity's notional accounting period, the value of assets held by the entity that:
(i) produce income from sources outside the United States of America; or
(ii) if disposed of would give rise to a gain from a source outside the United States of America;
do not exceed 5% of the total value of assets held by the entity.
(5) For the purposes of subsection (4), the value of FIF interests and the value of assets is to be determined using the accounting records of the entity.