Edited version of private advice

Authorisation Number: 1052334270596

Date of advice: 20 November 2024

Ruling

Subject: Section 99B - foreign trust income

Question

Will the capital distribution from the trust be taxed in Australia in accordance with section 99B of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

This ruling applies for the following period:

30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Person A and Person B are Australian residents.

Person A and Person B are beneficiaries (the beneficiaries) of the XXX Family Trust (the Trust), based in a foreign jurisdiction.

The Trust Deed was established by XXX, the Settlor and Trustee, on XX XXX XXXX.

Trustees of the Trust were the Settlor, XXX and XXX.

A Deed of Gift by the Settlor, dated XX XXX XXXX, irrevocably gifts to the Trustees the properties known as the Estates of XXX and XXX, all owned by the Settlor.

On XX XXX 20XX a contract was signed for the sale of a significant landholding.

Minute of Agreement, of XX XXX XXXX, between the Trustees and the Beneficiaries (including Grandchildren as other beneficiaries) of the Trust, and Person C. The Beneficiaries wanted to recognise the contribution made by Person C to enhance the capital value of the trust by paying Person C for their services as custodian of the property.

The Trustees made note of the Distribution Agreement with Person C in the Meeting minute dated XX XXX XXXX. The Trustees decided to make a payment of $XX to each of the beneficiaries, reduced to $XX after deducting the payment to Person C of $XX, bank interest and tax.

The beneficiaries received $XX each, paid into their Australian bank account in XXX 20XX.

The meeting noted that the equalisation of the Australian or any other tax will be addressed in a further final payment to the beneficiaries.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 99B

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

Income Tax Assessment Act 1997 Section 770-10

Reasons for decision

Section 99B of the ITAA 1936 deals with the receipt by a taxpayer of trust amounts (including property) that have not previously been subject to tax in Australia. It applies where an Australian resident for tax purposes receives an amount from a foreign trust.

Subsection 99B(1) of the ITAA 1936 provides that where a beneficiary who was an Australian resident at any time during an income year, is paid an amount from a trust, or has an amount of trust property applied for their benefit, that amount is to be included in the assessable income of the beneficiary in the income year it is paid.

Application to the taxpayer

In applying section 99B of the ITAA 1936 to your situation, you are discretionary beneficiaries of The Trust, established in a foreign jurisdiction, and in receipt of a foreign trust distribution.

The Trust held a significant land holding, with XXX parcels of land sold on XX XXX XXXX. According to the Meeting Minutes of XX XXX XXXX, the Trustees elected to make a payment of $XX to each of the beneficiaries.

Each beneficiary received $XX after the payment of $XX to Person C, interest and notional tax.

The Commissioner considers that the distributed amount is assessable under section 99B of the ITAA 1936.You will need to include in your Australian income tax return for the XXXX income year, the distribution of $XX deposited into your Australian bank account.

Foreign Tax

Section 770-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a foreign income tax offset can be claimed for foreign income tax paid by a taxpayer in respect of an amount that is included in their assessable income.

Foreign income tax is a tax imposed by a law other than an Australian law, on income, profits or gains (section 770-15 of the ITAA 1997). The taxpayer must have paid the foreign income tax before an offset is available. A taxpayer is deemed to have paid the foreign income tax if the foreign tax has been withheld from the income at its source (section 770-130 of the ITAA 1997).

If foreign tax has or will be paid on the amount distributed to you, a foreign income tax offset will be allowed on the foreign tax paid on the proportion of the distribution included in your assessable income.