ATO ID 2002/93: Income: Trustee of a Trust with a Non-Resident Beneficiary (Interest income)
Date of decision: 4 January 2002
Year of income: Year ended 30 June 1999
Business line: Private Groups and High Wealth Individuals

Issue
Whether the taxpayer, a trustee of a trust who is liable to be assessed for tax in respect of a non-resident beneficiary under section 98 of the Income Tax Assessment Act 1936 (ITAA 1936), should include in their assessable income an amount distributed to the non-resident beneficiary as interest, where withholding tax is payable on the interest.

Decision
No, the amount distributed to the non-resident beneficiary as interest, where withholding tax is payable on the interest, is excluded from the assessable income of the taxpayer trustee under section 128D of the ITAA 1936.

Facts
The taxpayer, a trustee of a trust, distributes an amount of interest to a non-resident beneficiary of the trust. The trustee withholds and pays the withholding tax on the interest. The trustee is liable for tax in respect of the non-resident beneficiary.

Reasons for decision
Summary: Section 128D of the ITAA 1936 excludes from assessable income certain income on which withholding tax is payable. Under subsection 128B(2) of the ITAA 1936 there is a liability to withholding tax by the trustee, on income consisting of interest paid to a non-resident, and under subsection 128C(1) of the ITAA 1936, the withholding tax is due and payable by the trustee. The amount distributed to the non-resident beneficiary as interest is excluded from the assessable income of the trustee under section 128D of the ITAA 1936, as withholding tax is payable on the interest income.

Legislative references: Income Tax Assessment Act 1936 section 98 subsection 128B(2) subsection 128C(1) section 128D
Related public rulings and determinations: IT 2680
Related ATO interpretative decisions: ATO ID 2002/94
Subject references: Non-resident beneficiaries Non-resident interest withholding tax Trusts Trust beneficiaries Trust distributions Distributions to non-residents