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  • Taxation of trust net income – non-resident beneficiaries

    The Income Tax Assessment Act 1936 (ITAA 1936) ensures that a trustee is assessed on a non-resident trustee beneficiary's share of the net income of a trust.

    This treatment is similar to the way in which trustees are assessed in relation to a non-resident company or individual beneficiary.

    If a trustee is assessed in respect of a non-resident trustee beneficiary's share of the net income of the trust, special rules apply to the assessment of the trustee beneficiary and any subsequent trustee beneficiary in the chain of trusts.

    Rules also apply on how the ultimate individual or company beneficiaries are assessed.

    Note: All references in this information are to the ITAA 1936 unless otherwise stated.

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    Rules for non-resident beneficiaries

    Generally, the net income of a trust is taxed to beneficiaries of the trust under section 97. However, section 98 applies in certain cases to tax a trustee in relation to a beneficiary, including where a beneficiary is a non-resident at the end of an income year. Trustees are taxed in relation to non-resident beneficiaries to assist in the collection of Australian tax on relevant income.

    Trustees of Australian managed investment trusts and Australian trustee intermediaries (to the extent their income is managed investment trust income) are not subject to taxation under section 98 where they are subject to taxation under Subdivision 12-H of the Tax Administration Act 1953.

    Operation of subsections 98(3)

    Subsection 98(3) provides that a trustee is liable to pay tax on a non-resident individual beneficiary's share of the net income of the trust or a non-resident company beneficiary's share of the net income of the trust.

    Rate of tax

    The rate of tax that a trustee pays in relation to a non-resident individual beneficiary that is not a trustee are at marginal rates.

    For a non-resident company beneficiary that is not a trustee, the full company or base rate entity rate will apply.

    Trustee tax – not a final tax

    Tax assessed to a trustee in relation to a non-resident beneficiary is generally not a final tax. If the trustee is assessed under subsection 98(3) in respect of an individual or company beneficiary, those beneficiaries are assessed under subsection 98A(1) and allowed a credit under subsection 98A(2) for tax paid by the trustee.

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      Last modified: 14 Sep 2020QC 19548