Private ruling: Trust distributions
Published: October 2012
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Q1: Is your Australian resident beneficiary individual entitled to a 50% discount on a capital gain distributed to you from a foreign trust in relation to the disposal of foreign land held by the foreign trust for over a year? | A1: Yes | Q2: Would the SMSF be entitled to a 33 1/3% discount on the capital gains distributed from the above mentioned sale of trust property? | A2: Yes | Q3: If the SMSF receives any trust distribution from you, will it be taxed at the highest marginal rate? | A3: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You (an Australian resident family trust) will receive distributions from a foreign trust in relation to foreign land sold in relevant year. The land was acquired by the trust in 200X. Your possible beneficiaries include a resident individual taxpayer, a resident private company and a resident SMSF.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-10 | Income Tax Assessment Act 1997 Section 10-5 | Income Tax Assessment Act 1997 Section 115-10 | Income Tax Assessment Act 1997 Section 115-25 | Income Tax Assessment Act 1997 Section 115-100 | Income Tax Assessment Act 1997 Section 115-215 | Income Tax Assessment Act 1997 Section 295-545 | Income Tax Assessment Act 1997 Section 295-550

Reasons for decision: Summary: Subsection 6-10(4) of the Income Tax Assessment Act 1997 (ITAA 1997) provides, if you are an Australian resident, your assessable income includes your statutory income from all sources, whether in or out of Australia. Section 10-5 of the ITAA 1997 includes capital gains and net income of a trust estate as statutory income that is included in assessable income. Section 115-10 of the ITAA 1997 provides a discount capital gain can be made by an individual, complying superannuation fund and trust (but not by a company). Section 115-25 provides, to be a discount capital gain, the capital gain must result from a CGT event happening to a CGT asset that was acquired by the entity making the gain at least 12 months before the CGT event. Section 115-100 provides the discount percentage is 50% if the gain is made by an individual or trust and 33 1/3% if the gain is made by a complying superannuation fund. Section 115-215 sets out rules about how presently entitled beneficiaries are to calculate their net capital gain when using the method statement in subsection 102-5(1) of the ITAA 1997. In determining liability to Australian tax on foreign sourced income from the foreign, it is necessary to consider not only the income tax laws but also the relevant tax treaty. The relevant tax treaty provides income or gains derived by a resident of Australia from the alienation of real property situated in the foreign country may be taxed in Australia. In other words, such a foreign capital gain and net capital gain from the foreign country will be calculated in accordance with the CGT provisions in the ITAA 1997, regardless of how it may be calculated in the foreign country. Division 770 of the ITAA 1997 provides an Australian resident taxpayer who makes a capital gain from foreign sources may be entitled to a foreign income tax offset (FITO) for tax paid on the capital gain in the foreign jurisdiction. This is provided that the capital gain qualifies as "foreign income" for the purposes of the FITO rules. In your case, the net capital gains of your beneficiaries will be calculated in accordance with the CGT provisions in the ITAA 1997, regardless of how the capital gain was calculated in the foreign country. As your capital gain resulted from a CGT event happening to a CGT asset that was acquired by the entity making the gain at least 12 months before the CGT event, your beneficiaries are eligible for a discount capital gain on your trust entitlement. Regarding the SMSF, subsection 295-545(1) of the ITAA 1997 provides the non-arm's length income component of a complying superannuation fund is taxed at the highest marginal rate. Subsection 295-550(4) of the ITAA 1997 specifies income derived by a complying superannuation fund as a beneficiary of a trust, other than because of holding a fixed entitlement to the income, is non-arm's length income of the superannuation fund. It follows any income received from you by the SMSF will be taxed at the highest marginal rate.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.