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Edited version of private ruling
Authorisation Number: 1011511990621
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Ruling
Subject: Trust - charitable trust
Question 1
As trustee of a charitable trust, will you be required to lodge trust tax returns in Australia?
Answer
No.
Question 2
Are you liable to tax in Australia in your capacity as trustee of a charitable trust?
Answer
No.
Question 3
Are the non resident beneficiaries liable to tax in Australia on non Australian sourced income?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2009
Relevant facts
Your relative died many years ago.
A Memorial Fund (Charitable Trust) was created under your relative's will.
A clause of the will provides information about establishing a charitable fund.
A Tax Exemption Certification was issued by the relevant revenue department to the trustee of the charitable trust in the relevant year of income
The trust is administered by Bank A. The Bank prepares all relevant financial accounts, operates all relevant bank accounts and manages all trust funds and investments etc. Your parent as co-trustee jointly decides which charity the Charitable Trust would give each year.
The current trustees of the charitable trust are Bank A Trustee Limited and your parent.
Your parent would like to retire and appoint you as trustee.
At September 200X the assets of the trust are approximately $B.
The trust is a resident of Australia and country X.
There is no double tax treaty between Australia and country X.
The trust has not been endorsed as an Income Tax Exempt Charity in Australia.
The trust has no Australian investments and no Australian sourced income.
Relevant legislative provisions
Subsection 95(2) of the Income Tax Assessment Act 1936
Subsection 98(2A) of the Income Tax Assessment Act 1936
Section 99 of the Income Tax Assessment Act 1936
Section 99D of the Income Tax Assessment Act 1936
Section 101 of the Income Tax Assessment Act 1936
Reasons for decision
Income of a trust estate
Income of the trust estate is the amount that, under trust law principles and the relevant terms of the trust deed, is to be treated as income of the trust estate. Net income of the trust estate is, in broad terms, the amount that would have been the taxable income of the trust if the trust estate had been an Australian resident person.
Residency of a trust estate
A charitable trust will be a resident trust estate within the meaning of subsection 95(2) of the Income Tax Assessment Act 1936 (the ITAA 1936) if at any time in the year a trustee is an Australian resident or the central management and control of the trust is in Australia.
You are a resident of Australia. Consequently, the charitable trust will be a resident trust estate.
Present entitlement
Where a trustee is given discretion to pay or apply trust income to or for the benefit of specified beneficiaries, a beneficiary in whose favour the trustee exercises the discretion is deemed to be presently entitled to the amount so paid or applied (section 101 of the ITAA 1936). In such a case, the beneficiary is assessable on the amount paid or applied, except where the beneficiary is under a legal disability or a non resident, in which case the trustee is assessable.
For section 101 to apply, there must be an effective exercise by the trustee of the discretion to pay or apply income for the benefit of a beneficiary before the end of the income year in which the income is derived by the trustee. The Commissioner may allow an extra two months after the end of the income year to make a resolution.
If a resolution was not made within two months after the end of the financial year to distribute the income to specific charities mentioned in the will and any others the trustee may decide [Clause x] the income would be income to which no beneficiary is presently entitled and assessable to the trustee.
Taxation of trust income
Division 6 of the ITAA 1936 deals with the taxation of resident trust estates. In general terms, Division 6 taxes:
- beneficiaries on the trust income to which they are presently entitled (excluding foreign source income to which a foreign resident beneficiary is presently entitled). The trustee would not be assessed on behalf of the non resident beneficiaries as they are entitled to foreign source income
- trustees on income to which no beneficiary is presently entitled. If an effective resolution is not made beneficiaries will not be presently entitled to the income and section 99 of the ITAA 1936 will apply to assess the trustee.
Refunds to foreign residents
Resident trustees are liable for income tax upon non-Australian income, but section 99D of the ITAA 1936 provides a means by which foreign resident beneficiaries who are in receipt of income derived by a resident trust from non-Australian sources may obtain a refund of any tax paid by the trustee on that income. The section applies to income that has been assessed to the trustee under section 99 of the ITAA 1936 that is subsequently paid to a foreign resident beneficiary. The beneficiary may apply to the Commissioner for a refund of the amount of tax paid on the income received by her or him via the trustee. The application must be in writing and must be lodged within 60 days after the date upon which the trust income was paid to the beneficiary. The Commissioner may extend this 60-day period.
The beneficiary is required to satisfy the Commissioner that he or she was not an Australian resident during the period that the income was derived and that the income received from the trust was derived by the trust from sources outside Australia. He or she must also establish that tax was paid on the income by the trustee.
Lodgement of trust returns
For administrative reasons it has been decided that trust tax returns will not be required to be lodged by you.
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