Edited version of private advice

Authorisation Number: 1052359204743

Date of advice: 05 March 2025

Ruling

Subject: Foreign trust distribution - section 99B

Question 1

Does the amount distributed to you, to the extent it represents cash amounts that were placed into the trust, constitute corpus for the purposes of paragraph 99B(2)(a) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer 1

Yes, except to the extent that any part of the amount 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.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Trust is a non-resident trust for Australian tax purposes.

The Trustees of the Trust are non-residents for Australian tax purposes.

Over a period of time, one of the Trustees deposited various amounts into a foreign bank account held by the Trust. These funds were classified by the Trustees as additions to the corpus of the Trust.

These funds were subsequently moved between bank accounts with one of these accounts being an interest-bearing account.

The Trustees of the Trust resolved to gift funds to an Australian resident beneficiary of the Trust.

An amount was transferred from a bank account held by the Trust to a personal bank account of one of the Trustees outside of the Trust.

On the same day, an amount was wired from the personal bank account to an Australian bank held by the Australian resident beneficiary.

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)

Reasons for decision

Broadly, section 99B of the ITAA 1936 deals with the receipt of trust amounts that have not previously been subject to tax in Australia. It applies where an Australian resident for tax purposes receives a lump sum payment from a foreign trust.

Subject to subsection 99B(2) of the ITAA 1936, subsection 99B(1) requires an Australian beneficiary to include in their assessable income an amount of trust property that is paid to, or applied for their benefit, provided the Australian beneficiary was resident at any time during the income year in which the payment or application was made.

Subsection 99B(2) of the ITAA 1936 reduces the amount included in assessable income under subsection 99B(1) by:

•                     for paragraph 99B(2)(a) - so much of the amount as represents 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

•                     for paragraph 99B(2)(b) - so much of the amount as represents 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.

Taxation Determination TD 2024/9 Income tax: factors taken into account in applying paragraphs 99B(2)(a) and (b) of the Income Tax Assessment Act 1936 explains that corpus, in the context in which it is used in section 99B of the ITAA 1936 refers to trust capital which is represented by the assets of the trust, excluding income which has not been accumulated. In determining whether an amount distributed represents corpus, for the purposes of paragraph 99B(2)(a), regard is had to the trust property distributed. The accounting records of the trust may assist in evidencing this but are not determinative of what the amount represents.

Accumulated income is included in corpus, but it will be corpus which is attributable to amounts which would be included in assessable income if derived by a hypothetical resident taxpayer. Accordingly the amount assessed under subsection 99B(1) of the ITAA 1936 will not be reduced by an amount attributable to accumulated income under paragraph 99B(2)(a).

In this case, a certain amount was deposited to a bank account held by the Trust from the after- tax salary of one of the trustees and was classified as corpus by the trustees. Consequently, it is accepted that these amounts, to the extent they form part of the distribution to you, are corpus of the Trust.

However, it is noted that any part of the amount the Australian resident beneficiary received from the Trust that included accumulated interest income will not reduce the amount assessed under subsection 99B(1) of the ITAA 1936.