We all know that when your partner says “I’m fine”, you shouldn’t take it as meaning he or she is fine. Taxation Determination (TD) 2016/D2 is the legislative equivalent – according to the Australian Taxation Office (ATO), just because the legislation states “I’m fine”, doesn’t mean it’s fine.
The issue in TD 2016/D2 is simple. Do you need to be an Australian resident to make an election to treat a (foreign) limited partnership as a foreign hybrid? This has implications for tax attributes such as Australian withholding taxes and capital gains.
Prior to the repeal of the foreign investment fund (FIF) provisions only Australian residents could elect. However, upon repeal of the FIF provisions, a necessary link between the requirement to be an Australian resident, and the ability of electing was also repealed.
The legislation on a literal read therefore currently allows a non-resident to elect.
In the ATO’s view, the requirement for a partner to have ‘an interest in a FIF’ should be read down to limit the election to resident partners who have an interest in a FIF. The rationale? If this was not the case, the first of two requirements to make an election would be superfluous and there is no stated intention to expand the scope of the election.
Much like home life, I don’t think the ATO will accept the excuse “I’m not a mind reader…”.