Edited version of private advice

Authorisation Number: 1051966542166

Date of advice: 11 April 2022

Ruling

Subject: Foreign trust distribution - temporary residents

Question

Is the distribution you received from a foreign trust assessable income in Australia?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are citizens of country A.

You arrived in Australia on temporary visas.

You are currently still on that same visas.

You are temporary residents of Australia.

You are beneficiaries of a country A trust (Trust).

The trustees of the Trust were foreign residents who have not lived in Australia.

The Trust was a majority shareholder of a country A registered company (Company).

The Company was liquidated and the Trust was wound up simultaneously with the Company liquidation.

The distribution from the Trust was paid directly to your country A bank account in the following year.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 6-10

Income Tax Assessment Act 1997 Section 768-910

Income Tax Assessment Act 1936 Section 99B

Reasons for decision

Under section 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) the assessable income of an Australian resident includes ordinary income and statutory income from all sources, whether in or out of Australia.

Section 6-10 of the ITAA 1997 states statutory income is not ordinary income but is included in assessable income by specific provisions in the income tax law.

Section 10-5 of the ITAA 1997 lists certain statutory amounts that form part of assessable income. Included in this list is income derived pursuant to section 99B of the Income Tax Assessment Act 1936 (ITAA 1936).

Taxation Determination TD 2017/23 Income tax: does the residency assumption in subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936) apply for the purpose of section 855-10 of the Income Tax Assessment Act 1997 (ITAA 1997), which disregards certain capital gains of a trust which is a foreign trust for CGT purposes? states that where a Capital Gains Tax (CGT) event happens to a CGT asset of a foreign trust for CGT purposes and that asset is not taxable Australian property, an amount attributable to such a gain is paid or applied for the benefit of a resident beneficiary of the trust, the amount may be included in the beneficiary's assessable income under section 99B of the ITAA 1936.

In your case, the distribution from the Trust is an amount attributable to a capital gain made by a foreign trust for CGT purposes in respect of an asset that was not taxable Australian property and is therefore assessable under 99B of the ITAA 1936.

However, section 768-910 of the ITAA 1997 provides that statutory income derived from a foreign source (excluding where the income relates to employment or other services provided by the individual) is non-assessable non-exempt income when derived by a temporary resident of Australia.

Therefore, as you are temporary residents of Australia, the distribution you received is non-assessable non-exempt income.