Edited version of private advice

Authorisation Number: 1052385540829

Date of advice: 14 April 2025

Ruling

Subject: Foreign lump sum payment - section 99B

Question 1

Will the lump sum payments you received from the foreign trust be subject to tax in Australia under subsection 99B (1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 1

Yes.

Question 2

Is the amount of the trust distribution that is included in your assessable income reduced by the part of the distribution that represents corpus of the trust (except to the extent it relates to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of a year of income) under paragraph 99B(2)(a) of the ITAA 1936?

Answer 2

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are Australian resident for tax purposes.

Your parent was a beneficiary of the person X Family trust in a foreign country.

Person X passed away on XX 19XX.

Your parent passed away in 20XX and 20XX. You, the only child of your parent was nominated as beneficiary in the family trust to receive your late parent's distribution in the future.

In XX 20XX, your relative, the last surviving member of person X, passed away. Therefore, the family trust came to an end.

In consequence of the termination of the trust, the capital of the estate was distributed between the remoter legitimate issue of person X.

In XX 20XX, you received an amount of money. This amount was an interim distribution from family trust and tax had been deducted in the foreign country.

In XX of 20XX, you received the final distribution from the trust.

At the time of the payments, you were not a trustee of the trust.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99B

Income Tax Assessment Act 1936 subsection 99B (1)

Income Tax Assessment Act 1936 subsection 99B (2)

Income Tax Assessment Act 1997 section 770-10

Reasons for decision

Your family trust is a foreign trust and the amount paid to you will be subject to tax under section 99B of the ITAA 1936.

Generally, section 99B of the ITAA 1936 deals with the receipt of trust amounts that have not previously been subject to tax in Australia. It applies where an Australian resident for tax purposes receives a lump sum payment from a foreign trust.

Subject to subsection 99B(2) of the ITAA 1936, subsection 99B(1) requires an Australian beneficiary to include in their assessable income an amount of trust property that is paid to, or applied for their benefit, provided the Australian beneficiary was resident at any time during the income year in which the payment or application was made.

However, subsection 99B(2) of the ITAA 1936 reduces the amount included in assessable income under subsection 99B(1) by:

•                     for paragraph 99B(2)(a) - so much of the amount as represents corpus of the trust estate, except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer for a year of income, and

•                     for paragraph 99B(2)(b) - so much of the amount as represents an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income.

Taxation Determination TD 2024/9 Income tax: factors taken into account in applying paragraphs 99B(2)(a) and (b) of the Income Tax Assessment Act 1936 explains that corpus, in the context in which it is used in section 99B of the ITAA 1936 refers to trust capital which is represented by the assets of the trust, excluding income which has not been accumulated. In determining whether an amount distributed represents corpus, for the purposes of paragraph 99B(2)(a), regard is had to the trust property distributed. The accounting records of the trust may assist in evidencing this but are not determinative of what the amount represents.

Accumulated income (for example, bank interest or share dividend income) is included in corpus, but it will be corpus which is attributable to amounts which would be included in assessable income if derived by a hypothetical resident taxpayer. Accordingly, the amount assessed under subsection 99B(1) of the ITAA 1936 will not be reduced by an amount attributable to accumulated income under paragraph 99B(2)(a).

Please refer to Practical Compliance Guideline PCG 2024/3 Section 99B of the Income Tax Assessment Act 1936 - ATO compliance approach for additional information on evidential and record keeping requirements in relation to foreign trust distributions (paragraphs 32 to 61). For further information about the Practical Compliance Guideline, please visit the Legal Database on the ATO website ato.gov.au and search for PCG 2024/3.

Section 770-10 of the ITAA 1997 provides that a foreign income tax offset can be claimed for foreign income tax paid by a taxpayer in respect of an amount that is included in their assessable income. The taxpayer must have paid the foreign income tax before an offset is available. A taxpayer is deemed to have paid the foreign income tax if the foreign tax has been withheld from the income at its source.

Application to your case

You received payments from a foreign trust as a beneficiary while you were an Australia resident for tax purposes. You will need to include in your tax return the distribution amount and exclude the amount that represents corpus of the trust estate. You may also be eligible for a foreign income tax offset for the foreign tax paid.

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