Edited version of private advice

Authorisation Number: 1051975349300

Date of advice: 3 May 2022

Ruling

Subject: Foreign trust distributions

Issue 1- Distributions in income year 1

Question 1

Was that part of the distribution from the foreign deceased Estate that represented cash held by Individual Y as at their date of death assessable to Individual X under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

Was that part of the distribution from the foreign deceased Estate that represented cash held by Individual Y as at their date of death assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

No.

Question 3

Was that part of the distribution from the foreign deceased Estate to Individual X that represented capital gains made on the disposal of the capital notes subject to tax under section 97 of the ITAA 1936 or Subdivision 115-C of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that the gains formed part of the net income of the Estate?

Answer

No.

Question 4

Was that part of the distribution from the foreign deceased Estate that represented capital gains made on the disposal of the capital notes assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

Issue 2 - Distributions in income year 2

Question 1

Was that part of the distribution from the foreign deceased Estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the estate, assessable to Individual X under section 97 of the ITAA 1936?

Answer

No.

Question 2

Was that part of the distribution from the foreign deceased Estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the estate, assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

No.

Issue 3 - Distributions in income year 3

Question 1

Was the capital distribution made to Individual X from the foreign deceased Estate that represented proceeds from the liquidation of the foreign company assessable under section 97 of the ITAA 1936?

Answer

No.

Question 2

Was the capital distribution made to Individual X from the foreign deceased Estate that represented proceeds from the liquidation of the foreign company assessable under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

Question 3

Was that part of the distribution from the foreign deceased Estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the estate, assessable to Individual X under section 97 of the ITAA 1936?

Answer

No.

Question 4

Was that part of the distribution from the foreign deceased estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the Estate, assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

No.

Question 5

Was Individual X or the Trustee of the Estate of Individual X entitled to a foreign income tax offset for the foreign tax paid by the foreign deceased Estate?

Answer

Yes.

Issue 4 - Distributions in income year 4

Question 1

Was the capital distribution made to Individual X from the foreign deceased Estate that represented proceeds from the liquidation of the foreign company assessable under section 97 of the ITAA 1936?

Answer

No.

Question 2

Was the capital distribution made to Individual X from the foreign deceased Estate that represented proceeds from the liquidation of the foreign company assessable under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

Question 3

Was the Trustee of the Estate of Individual X entitled to a foreign income tax offset for the foreign tax paid by the foreign deceased Estate?

Answer

Yes.

Issue 5 - Distributions in income years 5 to 6

Question 1

Will a distribution from the foreign deceased Estate that is referrable to capital gains made on the cancellation of the shares held in the foreign company be assessable to the Trustee for the Estate of Individual X under section 97 of the ITAA?

Answer

No.

Question 2

Will a distribution from the foreign deceased Estate that is referrable to capital gains made on the cancellation of the shares held in the foreign company be assessable to the Trustee for the Estate of Individual X under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

Question 3

Will a distribution from the foreign deceased Estate that is referrable to capital gains made on the disposal of the foreign properties formerly owned by the foreign company be assessable to the Trustee for the Estate of Individual X under section 97 or section 115-215 of the ITAA 1997?

Answer

No.

Question 4

Will a distribution from the foreign deceased Estate that is referrable to capital gains made on the disposal of the foreign properties formerly owned by the foreign company be assessable to the Trustee for the Estate of Individual X under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The Estate of Individual Y

Individual Y was not a resident of Australia for tax purposes.

The Executor of the Estate of Individual Y is a not a resident of Australia for tax purposes.

The assets of the Estate included cash, capital notes, loan receivable from a company (Company X) and shares in Company X. These were all assets held by Individual Y at the date of their death.

None of the assets of the Estate are or were taxable Australian property.

The Estate is not yet fully administered.

Company X

Company X is a not a resident of Australia for tax purposes.

Company X owned several commercial properties in a foreign country and earned rental income from those properties.

None of the assets of Company X are or were taxable Australian property.

The Estate of Individual Y is the sole shareholder of Company X.

Company X entered into voluntary liquidation. The liquidator made distributions to the Estate comprising of cash liquidation proceeds and in specie distributions of property.

The distributions represented the retained profit of Company X. Retained profits comprise of foreign sourced income and net capital gains from the sale of foreign property.

The amount of retained profit distributed to the Estate which is referrable to capital gains from the sale of foreign property is $X.

Properties transferred to the Estate in specie are yet to be sold and continue to earn rental income in the Estate.

Individual X

Individual X was one of the beneficiaries of the Estate of Individual Y and was an Australian resident for tax purposes.

Prior to their death, Individual X received various distributions from the Estate comprising of cash held by the estate, proceeds from the sale of capital notes, loan repayments, and a capital distribution of proceeds paid to the Estate from the liquidation of Company X.

Following their death, the estate of Individual X received a distribution from the Estate which represented a capital distribution sourced from proceeds paid to the Estate from the liquidation of Company X.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 47

Income Tax Assessment Act 1936 section 95

Income Tax Assessment Act 1936 subsection 95(1)

Income Tax Assessment Act 1936 section 97

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 1936 paragraph 99B(2)(a)

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

Income Tax Assessment Act 1997 section 104-25

Income Tax Assessment Act 1997 section 104-135

Income Tax Assessment Act 1997 Subdivision 115-C

Income Tax Assessment Act 1997 subsection 128-15(4)

Income Tax Assessment Act 1997 section 855-10

Reasons for decision

Issue 1- Distributions in income year 1

Question 1

Was that part of the distribution from the foreign deceased Estate that represented cash held by Individual Y as at their date of death assessable to Individual X under section 97 of the ITAA 1936?

Answer

No.

Although a beneficiary of a deceased estate during its administration will be presently entitled to the net income of the estate to the extent of the amounts actually paid to them or paid on their behalf, the cash held by the Estate of Individual Y as at the date of death of Individual Y is corpus of the Estate and not income of the Estate.

Therefore, there is no amount assessable under section 97 of the ITAA 1936.

Question 2

Was that part of the distribution from the foreign deceased Estate that represented cash held by Individual Y as at their date of death assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

No.

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

However, subsection 99B(2) excludes certain amounts from the scope of subsection 99B(1). Most relevantly:

•         paragraph 99B(2)(a) excludes an amount representing 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

•         paragraph 99B(2)(b) excludes 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.

In this case, the cash held by the Estate as at the date of death of Individual Y is corpus of the Estate and is therefore excluded from assessable income under paragraph 99B(2)(a) of the ITAA 1936.

Question 3

Was that part of the distribution from the foreign deceased Estate to Individual X that represented capital gains made on the disposal of the capital notes subject to tax under section 97 of the ITAA 1936 or Subdivision 115-C of the ITAA 1997 on the basis that the gains formed part of the net income of the Estate?

Answer

No.

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?explains that where a CGT event happens to a CGT asset of a foreign trust for CGT purposes and that asset is not taxable Australian property:

•         the trustee disregards any capital gain (or capital loss) from that event under section 855-10 of the ITAA 1997 in calculating the net income of the trust under subsection 95(1) of the ITAA 1936, and

•         Subdivision 115-C of the ITAA 1997 does not treat the trust's beneficiaries as having capital gains (or make the trustee assessable) in respect of the event.

However, if 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.

Question 4

Was that part of the distribution from the foreign deceased Estate that represented capital gains made on the disposal of the capital notes assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

Taxation Determination TD 2017/24 Income tax: where an amount included in a beneficiary's assessable income under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936) had its origins in a capital gain from non-taxable Australian property of a foreign trust, can the beneficiary offset capital losses or a carry-forward net capital loss ('capital loss offset') or access the CGT discount in relation to the amount?explains that where an amount is paid to an Australian resident beneficiary of a trust and the amount is referrable to a capital gain that had its origins in a capital gain from non-taxable Australian property, the amount is not treated as a capital gain of the beneficiary; however, the amount may nonetheless be assessable to the beneficiary under subsection 99B(1) of the ITAA 1936.

An amount made assessable by subsection 99B(1) does not have the character of a capital gain for Australian tax purposes, nor is there any linkage between subsection 99B(1) and Subdivision 115-C of the ITAA 1997.

Paragraph 99B(2)(a) of the ITAA 1936 excludes an amount representing 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.

The distribution made to the late Individual X by the foreign resident trust is a prima facie distribution of trust corpus so would not be assessable under section 99B of ITAA 1936 unless it is attributable to an amount that would be assessable to the trustee had they been a resident taxpayer.

In this case, a capital gain from the disposal of the capital notes would be included in the assessable income of an Australian resident taxpayer.

Therefore, although the capital gain was in respect of an asset that formed part of the corpus of the foreign trust estate, subsection 99B(2) does not exclude the amount from tax because it would have been included in the assessable income of a taxpayer being a resident if it had been derived by that taxpayer.

The amount of the capital gain will be the difference between the proceeds from the disposal of the capital notes and the market value of the capital notes on the day that Individual Y died, as per subsection 128-15(4) Item 3A of the ITAA 1997.

Issue 2 - Distributions in income year 2

Question 1

Was that part of the distribution from the foreign deceased Estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the Estate, assessable to Individual X under section 97 of the ITAA 1936?

Answer

No.

Although a beneficiary of a deceased estate during its administration will be presently entitled to the net income of the estate to the extent of the amounts actually paid to them or paid on their behalf, the cash held by the Estate as at the date of death of Individual Y, and the repayment of the loan owed to the Estate, were corpus of the Estate and not income of the Estate.

Therefore, there is no amount assessable under section 97 of the ITAA 1936.

Question 2

Was that part of the distribution from the foreign deceased Estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the Estate, assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

No.

The cash held by the Estate as at the date of death of Individual Y and the repayment of the loan owed to the Estate are corpus of the Estate and are therefore excluded from assessable income under paragraph 99B(2)(a) of the ITAA 1936.

Issue 3 - Distributions in income year 3

Question 1

Was the capital distribution made to Individual X from the foreign deceased Estate that represented capital proceeds from the liquidation of the foreign company assessable under section 97 of the ITAA 1936?

Answer

No.

TD 2017/23 explains that where a CGT event happens to a CGT asset of a foreign trust for CGT purposes and that asset is not taxable Australian property:

•         the trustee disregards any capital gain (or capital loss) from that event under section 855-10 of the ITAA 1997 in calculating the net income of the trust under subsection 95(1) of the ITAA 1936, and

•         Subdivision 115-C of the ITAA 1997 does not treat the trust's beneficiaries as having capital gains (or make the trustee assessable) in respect of the event.

Further, a foreign resident company can also disregard a capital gain or capital loss from a CGT event that happens to an asset that is not taxable Australian property:

In this case, the late Individual X received a capital distribution from the foreign Estate that was referrable to capital liquidation proceeds in respect of the shares held in the foreign company by the Estate. The shares are not taxable Australian property.

The foreign properties disposed of by the foreign company were also not taxable Australian property.

In terms of Australian tax law, CGT event G1 in section 104-135 of the ITAA 1997 happens if a company makes a payment in respect of a share in a company and the payment is not a dividend or an amount that is taken to be a dividend under section 47 of the ITAA 1936. However, a payment that is made within the period 18 months prior to the cessation of the company is disregarded for the purposes of this event. Rather those payments are treated as capital proceeds for CGT event C2 happening to the shares (subsection 104-135(6) of the ITAA 1997).

Net capital gains are disregarded in determining whether a payment is income and therefore a dividend paid by a company under section 47 of the ITAA 1936.

Consequently, depending on the timing of the cessation of the foreign company, either CGT event G1 or C2 happened in the hands of the foreign trust Estate on receipt of the capital liquidation proceeds from the foreign company.

Therefore, the trustee of the Estate of Individual Y disregards any capital gain (or capital loss) from the CGT event under section 855-10 of the ITAA 1997 in calculating the net income of the trust and there is no amount assessable to the late Individual X under section 97 of the ITAA 1936.

Question 2

Is the capital distribution made to Individual X from the foreign deceased Estate that represented capital proceeds from the liquidation of the foreign company subject to tax under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

TD 2017/24 explains that where an amount is paid to an Australian resident beneficiary of a trust and the amount is referrable to a capital gain that had its origins in a capital gain from non-taxable Australian property, the amount is not treated as a capital gain of the beneficiary; however, the amount may nonetheless be assessable to the beneficiary under subsection 99B(1) of the ITAA 1936.

An amount made assessable by subsection 99B(1) does not have the character of a capital gain for Australian tax purposes, nor is there any linkage between subsection 99B(1) of the ITAA 1936 and Subdivision 115-C of the ITAA 1997.

Paragraph 99B(2)(a) of the ITAA 1936 excludes an amount representing 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.

The capital distributions made to the late Individual X by the foreign resident trust are prima facie distributions of trust corpus, so will not be assessable under subsection 99B(1) of ITAA 1936 unless they are attributable to amounts that would be assessable in the hands of a resident taxpayer.

In this case, a capital gain from CGT event G1 or C2 in respect of the shares Company X would be included in the assessable income of a resident taxpayer.

The amount of the capital gain would be the difference between the amount of the liquidation proceeds distributed and the Estate of Individual Y's cost base of the shares, which will be the market value of those shares on the day that Individual Y died, as per subsection 128-15(4) Item 3A of the ITAA 1997.

From the above:

•         any part of the liquidation distribution that does not exceed the cost base of the Company X shares will be excluded from tax under subsection 99B(1) of the ITAA 1936 as the distribution will be an amount of trust corpus that would not be included in the assessable income of a resident taxpayer, and

•         any part of the liquidation distribution that exceeds the cost base of the shares will be subject to tax under subsection 99B(1) of the ITAA 1936 as the distribution will be an amount referrable to a capital gain which would be included in the assessable income of a resident taxpayer.

Question 3

Was that part of the distribution from the foreign deceased Estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the Estate, assessable to Individual X under section 97 of the ITAA 1936?

Answer

No.

Although a beneficiary of a deceased estate during its administration will be presently entitled to the net income of the estate to the extent of the amounts actually paid to them or paid on their behalf, the cash held by the Estate as at the date of death of Individual Y and the repayment of the loan owed to the Estate were corpus of the Estate and not income of the Estate.

Therefore, there is no amount assessable under section 97 of the ITAA 1936.

Question 4

Was that part of the distribution from the foreign deceased Estate that represented (a) cash held by Individual Y as at their date of death and (b) the repayment of the loan owed to the Estate, assessable to Individual X under subsection 99B(1) of the ITAA 1936?

Answer

No.

The cash held by the Estate as at the date of death of Individual Y and the repayment of the loan owed to the Estate are corpus of the Estate and excluded from assessable income under paragraph 99B(2)(a) of the ITAA 1936.

Question 5

Is Individual X entitled to a foreign income tax offset for the foreign tax paid by the foreign deceased Estate?

Answer

Yes.

Section 770-10 of the ITAA 1997 provides that a taxpayer is entitled to claim a foreign income tax offset for foreign income tax paid in respect of an amount that is included in assessable income.

Section 770-130 of the ITA 1997 provides that an offset is available if foreign income tax has been paid in respect of a taxed amount by another entity under an arrangement with the taxpayer or under the law relating to the foreign income tax.

Issue 4 - Distributions in income year 4

Question 1

Was the capital distribution made to the Trustee of the Estate of Individual X from the foreign deceased Estate that represented capital proceeds from the liquidation of the foreign company assessable under section 97 of the ITAA 1936?

Answer

No.

TD 2017/23 explains that where a CGT event happens to a CGT asset of a foreign trust for CGT purposes and that asset is not taxable Australian property:

•         the trustee disregards any capital gain (or capital loss) from that event under section 855-10 of the ITAA 1997 in calculating the net income of the trust under subsection 95(1) of the ITAA 1936, and

•         Subdivision 115-C of the ITAA 1997 does not treat the trust's beneficiaries as having capital gains (or make the trustee assessable) in respect of the event.

Further, a foreign resident company can also disregard a capital gain or capital loss from a CGT event that happens to an asset that is not taxable Australian property:

In this case, the late Individual X received a capital distribution from the foreign Estate that was referrable to capital liquidation proceeds in respect of the shares held in Company X by the Estate. The shares are not taxable Australian property.

The foreign properties disposed of by Company X were also not taxable Australian property.

In terms of Australian tax law, CGT event G1 in section 104-135 of the ITAA 1997 happens if a company makes a payment in respect of a share in a company and the payment is not a dividend or an amount that is taken to be a dividend under section 47 of the ITAA 1936. However, a payment that is made within the period 18 months prior to the cessation of the company is disregarded for the purposes of this event. Rather those payments are treated as capital proceeds for CGT event C2 happening to the shares (subsection 104-135(6) of the ITAA 1997).

Net capital gains are disregarded in determining whether a payment is income and therefore a dividend paid by a company under section 47 of the ITAA 1936.

Consequently, depending on the timing of the cessation of Company X, either CGT event G1 or C2 happened in the hands of the foreign Estate on receipt of the capital liquidation proceeds from Company X.

Therefore, the Estate of Individual Y disregards any capital gain (or capital loss) from the CGT event under section 855-10 of the ITAA 1997 in calculating the net income of the Estate and there is no amount assessable to the Trustee of the Estate of Individual X under section 97 of the ITAA 1936.

Question 2

Was the capital distribution made to the Trustee of the Estate of Individual X from the foreign deceased Estate that represented capital proceeds from the liquidation of the foreign company assessable under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

TD 2017/24 explains that where an amount is paid to an Australian resident beneficiary of a trust and the amount is referrable to a capital gain that had its origins in a capital gain from non-taxable Australian property, the amount is not treated as a capital gain of the beneficiary, however, the amount may nonetheless be assessable to the beneficiary under subsection 99B(1) of the ITAA 1936.

An amount made assessable by subsection 99B(1) does not have the character of a capital gain for Australian tax purposes, nor is there any linkage between subsection 99B(1) of the ITAA 1936 and Subdivision 115-C of the ITAA 1997.

Paragraph 99B(2)(a) of the ITAA 1936 excludes an amount representing 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.

The capital distributions made to the late Individual X by the foreign resident trust are prima facie distributions of trust corpus, so will not be assessable under subsection 99B(1) of ITAA 1936 unless they are attributable to amounts that would be assessable in the hands of a resident taxpayer.

In this case, a capital gain from CGT event G1 or C2 in respect of the shares in the foreign company would be included in the assessable income of a resident taxpayer.

The amount of the capital gain would be the difference between the amount of the liquidation proceeds distributed and the Estate of Individual Y's cost base of the Company X shares, which will be the market value of those shares on the day that Individual Y died, as per subsection 128-15(4) Item 3A of the ITAA 1997.

From the above:

•         any part of the liquidation distribution that does not exceed the cost base of the Company X shares will be excluded from tax under subsection 99B(1) of the ITAA 1936 as the distribution will be an amount of trust corpus that would not be included in the assessable income of a resident taxpayer, and

•         any part of the liquidation distribution that exceeds the cost base of the Company X shares will be subject to tax under subsection 99B(1) of the ITAA 1936 as the distribution will be an amount referrable to a capital gain which would be included in the assessable income of a resident taxpayer.

Question 3

Is the Trustee of the Estate of Individual X entitled to a foreign income tax offset for the foreign tax paid by the foreign deceased Estate?

Answer

Yes.

Section 770-10 of the ITAA 1997 provides that a taxpayer is entitled to claim a foreign income tax offset for foreign income tax paid in respect of an amount that is included in your assessable income.

Section 770-130 of the ITA 1997 provides that an offset is available if foreign income tax has been paid in respect of a taxed amount by another entity under an arrangement with the taxpayer or under the law relating to the foreign income tax.

Issue 5 - Distributions in income years 5 to 6

Question 1

Will a distribution from the foreign deceased Estate that represents capital gains made on the cancellation of the shares held in the foreign company be assessable to the Trustee for the Estate of Individual X under section 97 of the ITAA 1936?

Answer

No.

TD 2017/23 explains that where a CGT event happens to a CGT asset of a foreign trust for CGT purposes and that asset is not taxable Australian property:

•         the trustee disregards any capital gain (or capital loss) from that event under section 855-10 of the ITAA 1997 in calculating the net income of the trust under subsection 95(1) of the ITAA 1936, and

•         Subdivision 115-C of the ITAA 1997 does not treat the trust's beneficiaries as having capital gains (or make the trustee assessable) in respect of the event.

Therefore, there will be no amount assessable under section 97 of the ITAA 1936.

Question 2

Will a distribution from the foreign deceased Estate that is referrable to a capital gain made on the cancellation of the shares held in the foreign company be assessable to the Trustee for the Estate of Individual X under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

TD 2017/24 provides that where an amount is paid to an Australian resident beneficiary of a trust and the amount is referrable to a capital gain that had its origins in a capital gain from non-taxable Australian property, the amount is not treated as a capital gain of the beneficiary. However, the amount may nonetheless be assessable to the beneficiary under subsection 99B(1) of the ITAA 1936.

An amount made assessable by subsection 99B(1) does not have the character of a capital gain for Australian tax purposes, nor is there any linkage between subsection 99B(1) of the ITAA 1936 and Subdivision 115-C of the ITAA 1997.

Paragraph 99B(2)(a) of the ITAA 1936 excludes an amount representing 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.

A distribution made to the late Individual X by the foreign resident trust is a prima facie distribution of trust corpus, so would not be assessable under section 99B of ITAA 1936 unless it is attributable to an amount that would be assessable to the trustee had they been a resident taxpayer.

In this case, a capital gain from the cancellation of the shares in the foreign company would be included in the assessable income of an Australian resident taxpayer.

Therefore, although the capital gain was in respect of an asset that formed part of the corpus of the foreign trust estate, subsection 99B(2) does not exclude the amount from tax because it would have been included in the assessable income of a taxpayer being a resident if it had been derived by that taxpayer.

Question 3

Will a distribution from the foreign deceased Estate that is referrable to capital gains made on the disposal of the foreign properties formerly owned by the foreign company be assessable to the Trustee for the Estate of Individual X under section 97 of the ITAA 1936 or section 115-215 of the ITAA 1997?

Answer

No.

TD 2017/23 explains that where a CGT event happens to a CGT asset of a foreign trust for CGT purposes and that asset is not taxable Australian property:

•         the trustee disregards any capital gain (or capital loss) from that event under section 855-10 of the ITAA 1997 in calculating the net income of the trust under subsection 95(1) of the ITAA 1936, and

•         Subdivision 115-C of the ITAA 1997 does not treat the trust's beneficiaries as having capital gains (or make the trustee assessable) in respect of the event.

Therefore, there is no amount assessable under section 97 of the ITAA 1936 or section 115-215 of the ITAA 1997.

Question 4

Will a distribution from the foreign deceased Estate that is referrable to capital gains made on the disposal of the foreign properties formerly owned by the foreign company be assessable to the Trustee for the Estate of Individual X under subsection 99B(1) of the ITAA 1936?

Answer

Yes.

TD 2017/24 provides that where an amount is paid to an Australian resident beneficiary of a trust and the amount is referrable to a capital gain that had its origins in a capital gain from non-taxable Australian property, the amount is not treated as a capital gain of the beneficiary. However, the amount may nonetheless be assessable to the beneficiary under subsection 99B(1) of the ITAA 1936.

An amount made assessable by subsection 99B(1) does not have the character of a capital gain for Australian tax purposes, nor is there any linkage between subsection 99B(1) of the ITAA 1936 and Subdivision 115-C of the ITAA 1997.

Paragraph 99B(2)(a) of the ITAA 1936 excludes an amount representing 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

A distribution made to the late Individual X by the foreign resident trust is a prima facie distribution of trust corpus, so would not be assessable under section 99B of ITAA 1936 unless it is attributable to an amount that would be assessable to the trustee had they been a resident taxpayer.

In this case, a capital gain from the disposal of the foreign properties would be included in the assessable income of an Australian resident taxpayer.

Therefore, although the capital gain will be in respect of an asset that forms part of the corpus of the foreign trust estate, subsection 99B(2) will not exclude the amount from tax because it would be included in the assessable income of a taxpayer being a resident if it had been derived by that taxpayer.

The amount of the capital gain will be the difference between the proceeds from the disposal of the properties and the market value of the properties on the day that they were distributed in specie to the Estate of Individual Y by the liquidator of Company X.