Section 2 - Are you subject to the measures?
This information may not apply to the current year. Check the content carefully to ensure it is applicable to your circumstances.
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The amount to be included in the assessable income of a resident transferor for profits derived by a non-resident trust estate is called 'attributable income' and the resident transferor to whom it is attributed is called an 'attributable taxpayer'.
Exemptions from the transferor trust measures
A number of exemptions are provided from the transferor trust measures. These exemptions depend on the type of trust estate to which you have transferred property or services.
Public unit trusts
The transferor trust measures do not apply to a transfer of property or services to a non-resident trust estate if:
- the trust estate is a public unit trust at all times during the transferor's year of income
- the transfer was made for arm's length consideration
- the sole purpose of the transfer was the arm's length acquisition of units in the unit trust.
A unit trust will be a public unit trust if, at any time during the income year, any of the units were listed on a stock exchange in Australia or elsewhere or were offered to the public. A unit trust will also be a public unit trust if, at all times during the income year, the units in the unit trust were held by 50 or more individuals.
The transferor trust measures will apply to you if you make a transfer of property or services to a non-resident public unit trust on or after 12 April 1989 for less than arm's length consideration.
The transferor trust measures generally do not apply to a trustee of a deceased estate who transfers property or services to a non-resident trust estate according to directions contained in the deceased person's will or codicil, or according to a court order which varies the will or codicil. The measures will apply, however, if:
- the transfer is made through the exercise of the power of appointment or of a discretion by the trustee or any other person - for example, where the trustee of a deceased estate has a discretion to invest money of the trust estate and decides to transfer the money to a discretionary trust estate or
- the trustee transfers property or services to a non-resident trust estate but the transfer was caused by another entity - other than a deceased person - in which case, the entity that caused the transfer is treated as a transferor.
Non-resident family trusts
The transferor trust measures do not apply to an individual who has transferred property or services to a non-resident family trust. However, the trust must be a non-resident family trust at all times when it is in existence after the beginning of the transferor's 1990-91 income year until the end of the current income year - that is, the income year for which the transferor is working out assessable income.
An exemption from the transferor trust measures is also available to an individual who:
- first becomes an Australian resident after 12 April 1989
- makes a transfer to a non-resident family trust before taking up residency in Australia.
To qualify, the trust estate must be a non-resident family trust at all times after the transferor becomes a resident of Australia.
The exception does not apply to an individual who, as trustee, transferred any property or services to the non-resident family trust from any other trust estate.
Two types of non-resident family trusts are covered by this exception - post-marital family trusts and family relief trusts.
Post-marital family trusts
Post-marital family trusts come into existence after a decree or order of dissolution or annulment of a marriage or a decree or order of judicial separation or similar instrument. Trusts resulting from the breakdown of a de facto marriage also qualify. The beneficiaries of the trust estate must be non-resident individuals and:
- the spouse or former spouse of the individual, or
- a child of the individual or the individual's spouse, or
- a child of the individual's former spouse during the marriage.
Family relief trusts
Family relief trusts are established and operated to help non-resident family members. Trusts with Australian or non-family beneficiaries do not qualify as family trusts. The only beneficiaries permitted are non-residents who are related to the transferor. The following persons are treated as related to the transferor for this purpose.
- a spouse or former spouse
- a parent of the transferor or of the transferor's spouse or former spouse
- a child of the transferor or of the transferor's spouse or former spouse
- a grandparent of the transferor
- a grandchild of the transferor
- a brother or sister of the transferor or of the transferor's spouse or former spouse
- a child of the transferor's brother or sister
- a child of a brother or sister of the transferor's spouse or former spouse.
A trust estate will generally not qualify as a family trust if the assets of the trust are excessive given the requirements of the beneficiaries. There is an exception to this rule, however, if there have been no transfers of property or services to the trust after 12 April 1989. In this case the trust can have excessive assets and still qualify as a family trust.
A trust estate can still be a family trust estate if, in the event of the death of a family member, one or more individuals benefit or are capable of benefiting under the trust. These persons must, however, be:
- non residents
- children of the deceased family member.
If all beneficiaries die, the trust estate can still be a family trust estate if there are one or more funds, authorities or institutions covered by section 78 - the gift provisions - of the Act that would benefit or be capable of benefiting under the trust.
An individual who first became an Australian resident after 12 April 1989 will not be subject to the transferor trust measures if they transferred property or services to a non-resident trust estate before becoming a resident.
Discretionary trust estates
The transferor trust measures do not apply to a transferor who has transferred property or services to a discretionary trust estate if both of the following conditions are satisfied:
- the transfer was made in the course of carrying on a business
- the transfer was made in terms identical or similar to those that relate to transactions undertaken by the transferor, at or about the time of the transfer, in the ordinary course of business with ordinary clients or customers - that is, on an arm's length basis and subject to similar terms and conditions.
If the transfer was not made on an arm's length basis in the course of carrying on a business, the transferor trust measures will normally apply if at any time after the transfer the transferor or the transferor's associates were in a position to control the trust estate. However, if the transfer was made before 12 April 1989, the transferor trust measures will only apply if the transferor or the transferor's associates were in a position to control the trust after 12 April 1989.
If a transferor subsequently gains control of the discretionary trust estate, all years before the commencement of the transferor trust measures become subject to the measures.
A transferor is taken to be in a position to control a non-resident trust estate if the transferor or any associates:
- have power, by whatever means, to obtain the beneficial enjoyment of the corpus or income of the trust estate
- were able to control, directly or indirectly, the application of the income or corpus of the trust estate
- were capable, under a scheme, of gaining the enjoyment or control referred to in the above two points
- could expect the trustee to follow their directions, instructions or wishes or
- have the ability to remove or appoint any trustees of the trust estate.
All factors must be taken into account in determining whether the trustee of a trust estate was accustomed, or might reasonably be expected, to follow directions, instructions or wishes of a transferor or an associate of the transferor.
For example, a requirement in a trust deed for the trustee to ignore directions, instructions or wishes would not pre-empt the examination of the actual circumstances to determine whether the transferor or an associate controls the trustee. The way in which the trustee has acted in the past, the relationship between the transferor or transferor's associate and the trustee and the amount of property or services transferred to the trust estate, are some of the other matters that need to be considered.
Non-discretionary trust estates
The transferor trust measures will not apply to a transferor who transferred property or services to a non-discretionary trust estate before 12 April 1989. Moreover, the measures will not apply to a transfer of property or services after 12 April 1989 if:
- the trust estate was a non-discretionary trust estate at all times during the transferor's current year of income
- the transfer was made for arm's length consideration.
- one transferor - the original transferor - makes transfers of property or services to a non-resident non-discretionary trust estate which were all made for consideration at an arm's length amount, and
- another transferor - the second transferor - makes a transfer of property or services to the same non-resident trust estate on or after 12 April 1989 which is made for no consideration or consideration at less than an arm's length amount,
The second transferor - but not the original transferor - would become an attributable taxpayer in relation to the trust estate. Therefore, all the attributable income of the trust estate would be attributed to the second transferor.
Last modified: 05 Dec 2006QC 17522