Edited version of private advice

Authorisation Number: 1052170957950

Date of advice: 22 September 2023

Ruling

Subject: Residency and section 99B

Question 1

Are you a temporary resident under the Income Tax Assessment Act 1997?

Answer

Yes

Question 2

Does section 99B of the Income Tax Assessment Act 1936 apply to you if you receive a capital distribution from the Trust that is attributable to a source outside of Australia?

Answer

No. Based on the information provided to the Commissioner, you are a temporary resident under the Income Tax Assessment Act 1997 (ITAA 1997) as you meet the requirements within the meaning of section 995-1 of the ITAA 1997 through holding a temporary special category visa.

The capitalised distributions the Trust is distributing to you are ordinarily assessable income under section 99B of the Income Tax Assessment Act 1936 (ITAA 1936). As they are statutory income, it is necessary to consider the application of section 768-910 of the ITAA 1997, that is specifically paragraph 768-910(1)(b).

Subsection 768-910(2) of the ITAA 1997 provides that statutory income is taken to be derived when the circumstance occurs. For income to which section 99B of the ITAA 1936 applies, that is the time at which the distribution is made because that is when the disposition of property occurs. For the purpose of determining assessability of the income, this is also the time that the source of that income is determined (i.e. whether it is Australian or foreign sourced income),

The capitalised distributions are composed of trust income earned in past years that has been accumulated, but not distributed to any beneficiary. As the capitalised distributions are capital of the trust, they will take on the same character as the trust itself, that is:

•                     if the trust is a resident for taxation purposes in Australia, they will be Australian sourced, and

•                     if the trust is a foreign resident, then they will be foreign sourced distributions.

As the distribution comes from a foreign trust estate, then section 768-910 ITAA 1997 provides that it is non-assessable, non-exempt income of a temporary resident, being statutory income from a source other than an Australian source.

Item 12 in the table to the compendium in Taxation Determination TD 2017/24EC confirms that section 99B ITAA 1936 will not apply to assess a beneficiary who was a temporary resident for the whole of the relevant year of income on an amount that is not attributable to an Australian source.

Section 99B of the ITAA 1936 does not apply to the income from the trust.

This ruling applies for the following period:

Year ending 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

You are a citizen of Country X and hold a valid passport of that Country.

In July 2022, you arrived in Australia with the intent to relocate permanently from Country X.

Also, during 2022, you made several entries into and out of Australia from overseas using your County X passport to gain entry.

Upon each entry into Australia, using your Country X passport, you were issued with a special category visa.

You commenced residing in Australia in late July 2022 with your partner (also a Country X citizen) and started employment in Australia about the same time.

Your relationship broke down and you decided to return to Country X.

You returned to Australia in December 2022, where you commenced renting premises in January 2023.

You commenced full-time employment in February 2023 close to where you live.

Your parents still reside in Country X, but your grandparents and one aunt live in Australia.

You do not have any real property in Country X, nor do have any other assets in Country X.

You have never applied for permanent resident status and do not have a spouse.

You have never lived in Australia for a sustained period of time before February 2001.

You have now shown an intention to live in Australia on a permanent basis by way of taking a lease of premises in Australia.

You plan on purchasing property in Australia sometime in the near future.

The Trust

The Trust was settled in Country X, the settlor, and all the trustees and assets of the Trust are in Country X.

The Trust does hold international shares including Australian shares in an investment portfolio which is managed by a third-party advisor.

You are a beneficiary of the Trust.

The trust deed allows for the distribution of capital from the trust (Clause 4).

The Trust proposes to make a capital distribution from the corpus of the trust to the taxpayer for the purpose of assisting in the purchase of a residential property in Australia.

The corpus of the trust accruing from capital settlements exceeds the proposed distribution.

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 768-910

Income Tax Assessment Act 1997 subsection 768-910(1)(b)

Income Tax Assessment Act 1997 subsection 768-910(2)

Income Tax Assessment Act 1997 subsection 995-1(1)