Edited version of private advice

Authorisation Number: 1052288510807

Date of advice: 08 August 2024

Ruling

Subject: Foreign trust distributions

Question 1

Will the distribution of $XX to the taxpayer on DD MM 20XX from the trust be included in the taxpayer's assessable income under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 2

Yes.

Question 2

Will the amount included in the taxpayer's assessable income under subsection 99B(1) of the ITAA 1936 under Question 1 be wholly reduced under paragraph 99B(2)(a) of the ITAA 1936?

Answer 2

Yes.

Having regard to the accounting and bookkeeping information of the trust you have provided; the Commissioner is satisfied that the distribution of $XX to you on DD MM 20XX will be wholly composed of only the trust corpus of the trust.

On the basis that the distribution you receive will only be sourced only from the trust corpus of the trust and not from income earned on that trust corpus, the Commissioner does not consider that the distribution of $XX to you on DD MM 20XX will be attributable to amounts derived by the trust which would be included in the assessable income of a hypothetical resident taxpayer.

Question 3

Will the distribution of $YY to the taxpayer on DD MM 20XX from the trust be included in the taxpayer's assessable income under subsection 99B(1) of the ITAA 1936?

Answer 3

Yes.

Question 4

Will the amount included in the taxpayer's assessable income under subsection 99B(1) of the ITAA 1936 under Question 3 be wholly reduced under paragraph 99B(2)(a) of the ITAA 1936?

Answer 4

No.

Having regard to:

•                     the accounting and bookkeeping information of the trust you have provided, and

•                     the distribution made to you of $XX on DD MM 20XX being sourced only from trust corpus (see question 2);

the Commissioner is satisfied that at the time the distribution of $YY was made to you on DD MM 20XX, there was trust corpus in the amount of $CC in the Trust.

On the basis that the distribution you receive is not only sourced from the trust corpus of the trust, but is sourced, in part, from income earned on that trust corpus, the Commissioner considers that only $CC of the $YY distribution made to you on DD MM 20XX will be attributable to amounts derived by the trust which would be included in the assessable income of a hypothetical resident taxpayer.

As a result, the remaining amount of $DD will be included in your assessable income under subsection 99B(1) of the ITAA 1936 as it is not reduced under paragraph 99B(2)(a) of the ITAA 1936.

This ruling applies for the following period:

1 July 20XX to 30 June 20XX

The scheme commenced on:

XX May 20XX

Relevant facts and circumstances

The trust is a Country A resident discretionary trust pursuant to a trust deed (Trust Deed).

Under the Trust Deed, the eligible beneficiaries of the trust include the children of the deceased.

The children of the deceased are the taxpayer, Person B and Person C.

The Taxpayer is an Australian tax resident.

Person B and Person C are Country A tax residents.

Under clause 4.01 of the Trust Deed, the trustee may with respect to any part of the income of the trust pay or apply towards the personal support, maintenance, education, advancement in life or otherwise for the benefit of the eligible beneficiaries as may from time to time be living as the trustee in their absolute discretion shall think proper.

Under clause 4.02 of the Trust Deed, the trustee may accumulate income within 6 months after the end of the income year and any income so accumulated may be added to and form part of the capital of the trust.

Under clause 5 of the Trust Deed, the trustee may at any time pay, apply or transfer the whole or any part of the capital of the trust for the advancement or benefit of the eligible beneficiaries in such proportion and in such manner as the trustee sees fit.

The trustee of the trust made the following capital distributions to the taxpayer:

•                     On DD MM 20XX, $XX was distributed from the capital amounts of the trust as evidenced by the annual financial statement for the trust for the year ended 20XX.

•                     On DD MM 20XX, $YY was distributed from the capital amounts of the trust as evidenced by the annual financial statement for the trust for the year ended 20XX.

The taxpayer has not received a distribution from the trust prior to DD MM 20XX.

The trustee of the trust has maintained financial information and a copy of the trust's capital account for each income year from DD MM 20XX to present.

The trust received the following amounts as trust corpus during the life of the trust:

•                     Settlements of $ZZ.

•                     Amounts gifted to the trust as corpus of $AA.

Therefore, at the time of the capital distributions to the taxpayer, there was trust corpus in the amount of $BB in the trust.

The taxpayer has not previously contributed, transferred property or provided any services to the trust.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 99B(1)

Income Tax Assessment Act 1936 paragraph 99B(2)(a)

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