ATO Interpretative Decision

ATO ID 2002/95

Income Tax

Income: Trustee of a Trust with a Non-Resident Beneficiary (Franked Dividends and Imputation Credits)
FOI status: may be released

This version is no longer current. Please follow this link to view the current version.


CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Whether the taxpayer, a trustee of a trust who is liable to be assessed for tax in respect of a non-resident beneficiary under section 98 of the Income Tax Assessment Act 1936 (ITAA 1936), should include in their assessable income amounts distributed to a non-resident beneficiary as franked dividends and imputation credits.

Decision

No, the amount distributed to the non-resident beneficiary as franked dividends, which are exempt from withholding tax, is excluded from the assessable income of the trustee under section 128D of the ITAA 1936.

Section 160ARB of the ITAA 1936 provides a deduction that operates to remove the effect of the grossing-up of the dividends by the imputation credits.

Facts

The taxpayer, a trustee of a trust, distributes an amount of income, which includes franked dividends and imputation credits, to a non-resident beneficiary of the trust. No withholding tax is payable on the distribution.

The trustee is liable for tax in respect of the non-resident beneficiary.

Reasons for Decision

Section 128D of the ITAA 1936 excludes from assessable income, certain income that is exempt from withholding tax including franked dividends. The amount distributed to the non-resident beneficiary as franked dividends is excluded from the assessable income of the trustee under section 128D of the ITAA 1936.

The assessable income is reduced by the amount of imputation credits distributed to the non-resident beneficiary, as section 160ARB of the ITAA 1936 provides for a deduction limited to the lesser of:

(i)
the 'trust amount' (the share of the net income of the trust on which the trustee is liable to be assessed under section 98 of the ITAA 1936); and
(ii)
the 'potential rebate amount' in relation to the 'trust amount' if section 128D of the ITAA 1936 did not apply. The 'potential rebate amount' for the trustee (calculated using the formula in section 160APA of the ITAA 1936) equals the amount of imputation credits included in the assessable income of the trust estate.

In the trustee's case, the 'potential rebate amount' is less than the 'trust amount', and a deduction is available to the trustee under section 160ARB of the ITAA 1936 for the amount of the imputation credits included in assessable income.

Date of decision:  4 January 2002

Year of income:  Year ended 30 June 1999

Legislative References:
Income Tax Assessment Act 1936
   section 98
   section 128D
   section 160APA
   section 160ARB

Keywords
Non-resident individuals
Non-resident beneficiaries
Non-resident dividend withholding tax
Trusts
Trust beneficiaries
Trust distributions
Distributions to non-residents
Imputation credits
Franked dividends

Business Line:  Private Groups and High Wealth Individuals

Date of publication:  30 January 2002

ISSN: 1445-2782

history
  Date: Version:
You are here → 4 January 2002 Original statement
  22 October 2010 Archived

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).