Edited version of private advice

Authorisation Number: 1052200778465

Date of advice: 13 December 2023

Ruling

Subject: Trust distribution - capital gain - foreign property

Question: Will the distribution from the Trust in relation to the sale of the Property be included in your assessable income under section 97 of the Income Tax Assessment Act 1936?

Answer: No.

Under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936) a beneficiary who is presently entitled to a share of the income of a trust is required to include that share of the Trust's net income in their assessable income unless it is specifically excluded from being included in assessable income by a provision of the taxation legislation.

Under section 95 of the ITAA 1936, the net income of a trust is its taxable income calculated as if it was a resident of Australia.

When a beneficiary who is not under any legal disability is presently entitled to a distribution from a trust, their exempt income will include the beneficiary's individual interest in the exempt income of a trust under subparagraph 97(1)(b)(ii) of the ITAA 1936. This is attributable to a period when the beneficiary was a resident of Australia.

The Trust is a resident of Country X which will only pay tax in Country X in relation to the sale of the Property. Any capital gain arising from the sale will be treated as exempt income of the Trust in Australia under section 6-20 of the Income Tax Assessment Act 1997 and therefore not be included in the Trust's assessable income.

Therefore, any amount distributed to you from the Trust in relation to the sale of the Property will not be assessable income in your hands as any capital gain the Trust makes will not be included in the Trust's net income.

Accordingly, you will not have to pay tax in Australia for any amount distributed to you from the Trust in relation to the sale of the Property.

This ruling applies for the following period:

Income year ending 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You, being Person A and Person B, are citizens of, and hold valid passports of, Country X.

Person A solely purchased a property (the Property) located in Country X in their own name.

Person A, Person B and their family lived at the Property after it was purchased until it was transferred into the Trust several years after the Property was purchased.

You and your family continued to reside at the Property for some years after the title transfer until you and your family travelled to Australia to enable Person A to commence employment in Australia.

You both used your Country X passports to travel to Australia on a special temporary visa.

You are both residents of Australia for Australian domestic taxation purposes.

A Mutual agreement procedure (MAP) request was lodged to determine the residency status of the Trust.

The MAP decision stated that under the tie-breaker test in the Double Taxation Agreement (DTA) between Australia and Country X the Trust was solely a resident of Country X.

The Trust intends selling the Property and will distribute the remainder of proceeds from the sale of the Property to you as the primary discretionary beneficiaries of the Trust during the ruling period after the following has been paid:

•                     The mortgage in relation to the Property in Country X

•                     Selling related expenses, and

•                     Any other expenses relating to the Property.

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 6-20

Income Tax Assessment Act 1936 section 95

Income Tax Assessment Act 1936 section 97