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Ruling

Subject: Amounts from a trust

Question and Answer

Is an amount which is distributed from the corpus of a non-resident trust included in your assessable income?

No

This ruling applies for the following period

Period ended 30 June 2012

The scheme commenced 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.

The late was never a resident of Australia for immigration or tax purposes.

In 19XX the Trust A for the purposes of holding funds from the sale of real estate.

In 19YY The Late expressed in a letter to the Trustee of Trust A that on their death the assets of Trust A be divided equally into two separate funds, for the benefit of their children (You and your sibling).

Trust A was a resident of country A. Trustee 1, a resident company of Country A.

Trustee 1 makes all decisions concerning management of the trust and its investments. Trustee 1 also makes decisions concerning distribution of the trust's corpus and income.

From 19ZZ, Trust A's assets were comprised of all the issued shares in Company A.

Company A was incorporated in Country A. At all times the company had directors all of whom were resident of Country A and none of whom were residents of Australia.

The Late passed away in 20VV. Following their death, Trustee 1 established a second company, Company A1, to hold the investments which were notionally for your benefit. Company A, now held only investments which were notionally for the ultimate benefit of your sibling.

Company A1 was liquidated in 20WW and its assets were distributed to Trust A in 20WW, Trustee 1 as trustee of Trust A established Trust B with Trustee 1 as trustee. Trust B was established to formally separate investments held notionally for your ultimate benefit, whereas Trust A would now hold assets for the benefit of your sibling.

Trust B is not an Australian resident trust as Trustee 1 is a company incorporated and resident in Country B, and the trustee makes all decisions concerning management of the trust and of its investments. The trust's central management and control is located in Country B.

Trust B was settled was settled by Trustee 1 as Trustee of Trust A with $x and then received additional funds, being a gift being the corpus of Trust B.

In 20WW Company B was incorporated in Country B and Trust B acquired the issued shares in Company B. At all times since its incorporation, all of the directors of Company B have been residents of Country B.

During the relevant financial year, you tell us that you received a distribution from the corpus of Trust B.

The trust deed of Trust B explicitly allows the trustee to distribute trust capital.

You provided Trustee 1 as the trustee of Trust B a letter of wishes whereby you express your wish that income and capital be distributed according to your wishes.

You advised that the amount you received is the corpus of the Trust on the basis of Trustee 1's advice.

Relevant legislative provisions

Income Tax Assessment Act 1936

Section 99B

Income Tax Assessment Act 1997

Section 6-5

Reasons for decision

Distributions of Trust Income

Subsection 99B(1) of the ITAA 1936 applies where an amount of trust property is paid to, or applied for the benefit of, a beneficiary during an income year and the beneficiary is a resident at any time during that income year. Where these conditions are satisfied, the amount is included in the assessable income of the beneficiary.

However, subsection 99B(1) of the ITAA 1936 is qualified by subsection 99B(2) of the ITAA 1936 which broadly reduces the amount included in the assessable income of the beneficiary to the extent that it represents:

· corpus of the trust estate - but not an amount that is attributable to income derived by the trust estate which would have been included in the assessable income of a resident taxpayer had it been derived by that taxpayer

· an amount that would not have been included in the assessable income of a resident taxpayer had it been derived by that taxpayer

· an amount that is or has been included in the assessable income of the beneficiary under section 97 of the ITAA 1936

· an amount that has been assessed to either the trustee of the trust or the trustee of another trust under Division 6 of Part III of the ITAA 1936, or

· an amount that has been included in the assessable income of a taxpayer under Division 6AAA of Part III of the ITAA 1936.

In your situation, the conditions in subsection 99B(1) of the ITAA 1936 are not satisfied as you have specifically stated that the distribution amount of X received from Trust B came from the corpus of the Trust B.

As one of the exclusions in subsection 99B(2) of the ITAA 1936 applies to your distribution of corpus from Trust B, the entire amount is not assessable income under subsection 99B(1) of the ITAA 1936.