Edited version of your private ruling

Authorisation Number: 1012341711386

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Trust distributions

Question

Is your Australian resident beneficiary individual entitled to a 50% discount on a capital gain distributed to you from a foreign trust in relation to the disposal of foreign land held by the foreign trust for over a year?

Answer:

Yes

Question

Would the SMSF be entitled to a 33 1/3% discount on the capital gains distributed from the above mentioned sale of trust property?

Answer:

Yes

Question

If the SMSF receives any trust distribution from you, will it be taxed at the highest marginal rate?

Answer:

Yes

This ruling applies for the following periods:

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on:

1 July 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You (an Australian resident family trust) will receive distributions from a foreign trust in relation to foreign land sold in relevant year.

The land was acquired by the trust in 200X.

Your possible beneficiaries include a resident individual taxpayer, a resident private company and a resident SMSF.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 10-5

Income Tax Assessment Act 1997 Section 115-10

Income Tax Assessment Act 1997 Section 115-25

Income Tax Assessment Act 1997 Section 115-100

Income Tax Assessment Act 1997 Section 115-215

Income Tax Assessment Act 1997 Section 295-545

Income Tax Assessment Act 1997 Section 295-550

Reasons for decision

Subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides, if you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia. Section 10-5 of the ITAA 1997 includes capital gains and net income of a trust estate as statutory income that is included in assessable income.

Section 115-10 of the ITAA 1997 provides a discount capital gain can be made by an individual, complying superannuation fund and trust (but not by a company).

Section 115-25 provides, to be a discount capital gain, the capital gain must result from a CGT event happening to a CGT asset that was acquired by the entity making the gain at least 12 months before the CGT event.

Section 115-100 provides the discount percentage is 50% if the gain is made by an individual or trust and 33 1/3% if the gain is made by a complying superannuation fund.

Section 115-215 sets out rules about how presently entitled beneficiaries are to calculate their net capital gain when using the method statement in subsection 102-5(1) of the ITAA 1997.

In determining liability to Australian tax on foreign sourced income from the foreign, it is necessary to consider not only the income tax laws but also the relevant tax treaty.

The relevant tax treaty provides income or gains derived by a resident of Australia from the alienation of real property situated in the foreign country may be taxed in Australia.

In other words, such a foreign capital gain and net capital gain from the foreign country will be calculated in accordance with the CGT provisions in the ITAA 1997, regardless of how it may be calculated in the foreign country.

Division 770 of the ITAA 1997 provides an Australian resident taxpayer who makes a capital gain from foreign sources may be entitled to a foreign income tax offset (FITO) for tax paid on the capital gain in the foreign jurisdiction. This is provided that the capital gain qualifies as "foreign income" for the purposes of the FITO rules.

In your case, the net capital gains of your beneficiaries will be calculated in accordance with the CGT provisions in the ITAA 1997, regardless of how the capital gain was calculated in the foreign country. As your capital gain resulted from a CGT event happening to a CGT asset that was acquired by the entity making the gain at least 12 months before the CGT event, your beneficiaries are eligible for a discount capital gain on your trust entitlement.

Regarding the SMSF, subsection 295-545(1) of the ITAA 1997 provides the non-arm's length income component of a complying superannuation fund is taxed at the highest marginal rate. Subsection 295-550(4) of the ITAA 1997 specifies income derived by a complying superannuation fund as a beneficiary of a trust, other than because of holding a fixed entitlement to the income, is non-arm's length income of the superannuation fund. It follows any income received from you by the SMSF will be taxed at the highest marginal rate.