Private ruling: Fixed trust and non-resident beneficiary
Date of advice: 2 June 2023
Published: 24 July 2023
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Do the beneficiaries of Testamentary trust X currently have fixed entitlements to all of the income and capital of the Trust as defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) and subsection 272-5(1) of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936) based on the terms of the Will? | A1: Yes. | Q2: Will the beneficiaries of Testamentary trust X have fixed entitlements to all of the income and capital of the Trust as defined in subsection 995-1(1) of the ITAA 1997 and subsection 272-5(1) of Schedule 2F to the ITAA 1936 after the deed of family arrangement is entered into? | A2: Yes. | Q3: Do the beneficiaries of Testamentary trust Y currently have fixed entitlements to all of the income and capital of the Trust as defined in subsection 995-1(1) of the ITAA 1997 and subsection 272-5(1) of Schedule 2F to the ITAA 1936 based on the terms of the Will? | A3: Yes. | Q4: Will the beneficiaries of Testamentary trust Y have fixed entitlements to all of the income and capital of the Trust as defined in subsection 995-1(1) of the ITAA 1997 and subsection 272-5(1) of Schedule 2F to the ITAA 1936 after the deed of family arrangement is entered into? | A4: Yes. | Q5: Will the non-resident beneficiary and the trustees be able to disregard the capital gains made as a result of CGT event E6 or C2 happening on the ending of the right to receive income from Testamentary trust X? | A5: No. | Q6: Will the non-resident beneficiary and the trustees be able to disregard the capital gains made as a result of CGT event E6 or C2 happening on the ending of the right to receive income from Testamentary trust Y? | A6: No. | Q7: Will the non-resident income beneficiary of Testamentary trust X be able to disregard a capital gain arising from CGT events E6 or C2 because of CGT event K6 occurring in connection with the ending of the right to receive income from the trust? | A7: No | Q8: If the answer to Question 7 is 'no', will the non-resident beneficiary be able to reduce the capital gain that would arise to them because of the happening of CGT event E6 or C2 by way of the application of section 118-20 of the ITAA 1997? | A8: No.

Relevant facts and circumstances: Individual X had a spouse, Individual Y. Individual X and Individual Y had a number of children who were born before 1985. One of the children of Individual X and Individual Y had a number of children who were born after 1985. Individual X died before 1985. The will of Individual X provided that the trustees had full power to vary, transpose, sell and re-invest any investments held by the trust fund. The will of Individual X provided that: • the spouse of Individual X was to receive the net annual income of the trust fund during their lifetime • after the death of the spouse, the net annual income was to be paid to the children of Individual X during their lifetimes • after the death of the last surviving child, the remaining trust funds were to be divided equally between and grandchildren of Individual X. The estate of Individual X (Testamentary trust X) currently comprises of residential properties, listed shares and securities all acquired after 1985, and cash. Individual Y died after 1985. The will of Individual Y provided that the trustees had full power to vary, transpose, sell and re-invest any investments held by the trust fund. The will of Individual Y provided that: • the net annual income of the trust fund was to be paid to the children of Individual Y during their lifetimes • after the death of the last surviving child, the remaining trust funds were to be divided equally between and grandchildren of Individual Y. The estate of Individual Y (Testamentary trust Y) comprises of listed shares and securities all acquired after 1985, and cash. One of the children (the non-resident beneficiary) of Individual X and Individual Y migrated to a foreign country and became a foreign resident many years after 1985. At the time the non-resident beneficiary ceased their Australian residency, they disregarded a notional disposal of their CGT assets in respect of CGT event I1 under sections 104-160 and 104-165 of the ITAA 1997. In connection and agreement with the relevant beneficiaries, the trustees of the testamentary trusts are proposing to dispose of the trust assets to eligible beneficiaries in order to vest each of the trusts. This includes a proposed payment to the income beneficiaries to end their income rights in the trusts. Adraft deed of family arrangement (Deed) has been prepared to document how the trustees propose to vest and distribute the assets of the trusts with the agreement of the beneficiaries. The assets and net income of the trusts will be distributed to the beneficiaries in full satisfaction of all claims or rights which they had, now have or may hereafter have against the estates. Under the Deed, the children of Individual X and Individual Y will receive shares, securities and cash, and the grandchildren will receive a residential property each.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 95(1) | Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1936 section 98 | Income Tax Assessment Act 1936 subsection 98(2A) | Income Tax Assessment Act 1936 subsection 98A(2) | Income Tax Assessment Act 1936 Division 6E of Part III | Income Tax Assessment Act 1936 subsection 272-5(1) | Income Tax Assessment Act 1936 section 272-65 of Schedule 2F | Income Tax Assessment Act 1997 section 102-25 | Income Tax Assessment Act 1997 section 104-25 | Income Tax Assessment Act 1997 section 104-80 | Income Tax Assessment Act 1997 section 104-160 | Income Tax Assessment Act 1997 section 104-165 | Income Tax Assessment Act 1997 section 104-230 | Income Tax Assessment Act 1997 section 112-20 | Income Tax Assessment Act 1997 Subdivision 115-C | Income Tax Assessment Act 1997 section 115-215 | Income Tax Assessment Act 1997 section 115-220 | Income Tax Assessment Act 1997 section 118-20 | Income Tax Assessment Act 1997 section 855-10 | Income Tax Assessment Act 1997 section 855-40 | Income Tax Assessment Act 1997 subsection 995-1(1)

Reasons for decision: Detailed Reasoning - Questions 1 to 4 - Fixed entitlements to income and capital: Subsection 272-5(1) of Schedule 2F to the ITAA 1936 states that if, under a trust instrument, a beneficiary has a vested and indefeasible interest in a share of income of the trust that the trust derives from time to time, or of the capital of the trust, the beneficiary has a fixed entitlement to that share of the income or capital. Section 272-65 of Schedule 2F to the ITAA 1936 provides that a trust is a 'fixed trust' if persons have fixed entitlements to all of the income and capital of the trust. Further, subsection 995-1(1) of the ITAA 1997 provides that a trust is a fixed trust if entities have fixed entitlements to all of the income and capital of the trust. | Detailed Reasoning - Vested and indefeasible interests: Practical Compliance Guideline PCG 2016/16 Fixed entitlements and fixed trusts (PCG 2016/16) explains the following in relation to vested and indefeasible interests: 13. In terms of the concept of 'fixed entitlement', an interest is 'vested' if it is vested in interest or vested in possession.8 An interest is vested in possession when it gives its holder a right of present enjoyment, whereas an interest is vested in interest if it gives its holder a present right to future enjoyment. 14. The mere object of a discretionary trust does not have a vested interest in, and therefore does not have a fixed entitlement to, either the income or capital of the trust. 15. An interest is defeasible if it can be defeated by the actions of one or more persons or by the occurrence of one or more subsequent events. An interest of a default beneficiary in the income or capital of the trust is an example of a defeasible interest. Paragraph 16 of PCG 2016/16 states that powers in a trust instrument which cause a beneficiary's interests to be defeasible include: • Broad powers to amend the trust instrument • A power to appoint a beneficiary's interest in the income or capital of the trust to another beneficiary • A power to settle or appoint any part of the corpus of the trust to a new trust with different beneficiaries. Further, the Explanatory Memorandum (EM) to the Taxation Laws Amendment (Trust Loss and Other Deductions) Bill 1997 which introduced the trust loss measures provides an explanation in relation to the meaning of 'vested and indefeasible' interest - see paragraphs 13.3 to 13.9. In particular, the EM states: 13.7 A vested interest is indefeasible where, in effect, it is not able to be lost. A vested interest is defeasible where it is subject to a condition subsequent that may lead to the entitlement being divested. A condition subsequent is an event that could occur after the interest is vested that would result in the entitlement being defeated, for example, on the occurrence of an event or the exercise of a power. For example, where a beneficiary's vested interest is able to be taken away by the exercise of a power by the trustee or any other person, the interest will not be a fixed entitlement. 13.8 Where the trustee exercises a power to accumulate income or capital of the trust in accordance with the trust deed, the accumulation does not result in a beneficiary's interest being taken away or defeased as long as the beneficiary nevertheless remains entitled at some future time to enjoy his or her share of the income or capital which has been accumulated. Taxation Ruling TR 2018/6 Income tax: trust vesting - consequences of a trust vesting states that: 11. Though it is common to speak of a trust's vesting, it is the interests of the beneficiaries in the property of the trust that vest on the vesting date. 12. On a trust's vesting date, the interests in the property of the trust become vested in interest and possession. In the case of a discretionary trust, from the time the trust vests the trustee no longer has any discretionary power to appoint the income or capital of the trust. Rather it holds the trust property for the absolute benefit of those beneficiaries specified as the takers on vesting. 13. The vesting of beneficial interests in a trust, even if described as a 'Termination Date', does notordinarily cause the trust to come to an end, nor cause a new trust to arise. Vesting does not mean trust property must be transferred to the takers on vesting on the vesting date, or that the trust must be wound up either immediately or within a reasonable period (although the deed may require these events to occur after vesting). 14. Further, where a trustee continues to hold property for takers on vesting, the property is held on the same trust as existed pre-vesting; albeit the nature of the trust relationship changes. | Detailed Reasoning - Application to your circumstances: In this case, under the terms of the wills of Individual X and Individual Y: • The children each have a life interest of 50% in the income of the respective estates, and • The grandchildren each have a residual interest of 50% in the income and capital of the estates. Consequently, it is considered that: • the interests of the children to the income of the estates are vested in possession as they have a right to present enjoyment of the income of the respective estates, and • the interests of the grandchildren in the income and capital of the estates are vested in interest as they have a present right to future enjoyment of the income and capital of the estates. Further, the interests of the respective beneficiaries are indefeasible as the trust instrument does not provide the trustee with discretionary powers that would have the effect of defeating the entitlement of any of the beneficiaries. Therefore, on the basis that the trustee does not have the power to vary the terms of the respective wills (unless agreed to by a court), it is considered the estates of Individual X and Individual Y are fixed trusts as the beneficiaries have fixed entitlements to all of the income and capital of the trusts under the terms of the respective wills. | Detailed Reasoning - Proposed deed of family arrangement: The Deed provides for the vesting of the trusts as the assets and net income of the trusts will be distributed to the beneficiaries in full satisfaction of all claims or rights which they had, now have or may hereafter have against the estates. As such, the Deed will form part of the trust instrument following approval by the Court. As mentioned above, TR 2018/6 explains that on a trust's vesting date the interests in the property of the trust become vested in interest and possession. The beneficiaries of the estates would then be the takers on vesting and hold a fixed interest in the capital, and income thereon, after the trusts vest. Therefore, when the proposed Deed is given effect to, the respective estates will remain fixed trusts. | Detailed Reasoning - Conclusion: The estates of Individual X and Individual Y are currently fixed trusts and will also be fixed trusts after the Deed is entered into as all the beneficiaries currently have, and will have, fixed entitlements to all of the income and capital of the trusts as defined in subsection 995-1(1) of the ITAA 1997 and subsection 272-5(1) of Schedule 2F to the ITAA 1936. Question 5 - T estamentary trust X - CGT events E6 and C2 In this case, the non-resident beneficiary and life interest owner of the Individual X and Individual Y will receive an in specie distribution of shares and securities, and also a cash distribution, which will end their right to receive income from the estates. | Detailed Reasoning - In specie distribution of shares: CGT event E6 in section 104-80 of the ITAA 1997 happens if the trustee of a trust (except a unit trust or a trust to which Division 128 applies) disposes of a CGT asset of the trust to a beneficiary in satisfaction of the beneficiary's right, or part of it, to receive income from the trust. In the context of CGT event E6, the Division 128 exception will apply if, as part of the administration of a deceased estate, an asset the deceased owned when they died passes to a beneficiary in accordance with section 128-20. In this case, Division 128 does not apply as the assets of the estates were all acquired after Edwin (and Margaret) died (see paragraph 79 of Taxation Ruling TR 2006/14 Income tax: capital gains tax: consequences of creating life and remainder interests in property and of later events affecting those interests (consolidated ruling published 6 March 2013) (TR 2006/14)). The trustee makes a capital gain if the market value of the asset (at the time of the disposal) is more than its cost base. It makes a capital loss if that market value is less than the asset's reduced cost base (subsection 104-80(3)). The beneficiary makes a capital gain if the market value of the asset (at the time of the disposal) is more than the cost base of the right, or the part of it. The beneficiary makes a capital loss if that market value is less than the reduced cost base of the right or part (subsection 104-80(5)). A note to subsection 104-80(5) of the ITAA 1997 explains that if the beneficiary did not pay anything for the right, the market value substitution rule (in respect of the cost base or reduced cost base of the right) does not apply (see section 112-20 of the ITAA 1997). A capital gain or capital loss the trustee makes is disregarded if it acquired the asset before 20 September 1985 (subsection 104(80(4)). A capital gain or capital loss the beneficiary makes is disregarded if it acquired the CGT asset that is the right before 20 September 1985 (subsection 104-80(6)) Where a trustee transfers an asset to a life interest owner, TR 2006/14 relevantly states: 54. The trustee makes a capital gain from CGT event E6 if the market value (at the time of the event) of the asset disposed of is more than its cost base. The trustee makes a capital loss if that market value is less than the asset's reduced cost base: subsection 104-80(3). 55. Any capital gain or loss from CGT event E6 happening to the trustee is taken into account in working out the trustee's net capital gain or loss. A net capital gain is included in the net income of the trust in accordance with subsection 95(1) of the ITAA 1936 and taxed in accordance with Subdivision 115-C. 56. The life interest owner makes a capital gain from CGT event E6 if the market value of the asset they acquire from the trustee is more than the cost base of their right to income (that is, their life interest). They make a capital loss if the market value of the asset is less than the reduced cost base of the life interest: subsection 104-80(5). ----------------- 82. Both the trustee and life or remainder owner may make a capital gain from CGT event E5, E6 or E7 happening. In these circumstances, subject to the operation of Subdivision 115-C, the life or remainder owner may (in addition to the capital gain they have made from CGT event E5, E6 or E7 happening) also be taken to have an additional capital gain referable to the relevant trust capital gain. ------------- 84. However section 118-20 is precluded from applying to reduce a beneficiary's capital gain from CGT event E5, E6 or E7 by any amount of trust capital gain assessed to them as a result of the operation of Subdivision 115-C. This is because both of these amounts are included in the beneficiary's assessable income under Part 3-1 and so section 118-20 is not invoked. In this case, Individual X died before 1985 and: • Individual Y held a life interest in the income of Individual X's estate from that time • the non-resident beneficiary held an interest in the income of the estate that was vested in interest from that time • after Individual Y died after 1985, the non-resident beneficiary held a life interest in the income of Individual X's estate from the date of Individual Y's death From the above, as the non-resident beneficiary acquired their life interest after Individual Y died, the non-resident beneficiary was only vested in possession and presently entitled to the income of Individual X's estate from that time. Therefore, the non-resident beneficiary acquired the CGT asset that is the right to receive income from Individual X's estate after 20 September 1985 and any capital gain or loss from CGT event E6 cannot be disregarded. | Detailed Reasoning - Section 855-10 of the ITAA 1997: Section 855-10 of the ITAA 1997 provides that you can disregard a capital gain or loss from a CGT event if: a) you are a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens; and b) the CGT event happens in relation to a CGT asset that is not taxable Australian property. In this case, at the time the non-resident beneficiary ceased their Australian residency in 20XX, they disregarded a notional disposal of all their CGT assets in respect of CGT event I1 under sections 104-160 and 104-165 of the ITAA 1997. Therefore, all of the non-resident beneficiary's CGT assets, including their life interest in the income of Individual X's estate, were deemed to be taxable Australian property from that time. Consequently, section 855-10 of the ITAA 1997 will not apply to disregard a capital gain or loss the non-resident beneficiary makes from CGT event E6 happening to their life interest in the income of the testamentary trust, which is the relevant CGT asset, as the asset is deemed to be taxable Australian property. | Detailed Reasoning - Section 855-40 of the ITAA 1997: Section 855-40 of the ITAA 1997 disregards a capital gain that a foreign resident beneficiary of a fixed trust is taken to have as a result of a CGT event happening to a CGT asset of that trust if, at the time of the event, the CGT asset was not taxable Australian property of the trust. The purpose of the provision is to provide comparable treatment to that which would have been available had the beneficiary directly owned the trust asset(s). For example, if the trustee sells a non-TAP asset of the trust to a third party, the foreign resident beneficiary disregards the gain that is attributable to the trustee's A1 disposal event. Specifically, subsection 855-40(2) of the ITAA 1997 provides that a capital gain you make in respect of your interest in a fixed trust is disregarded if: • you are a foreign resident when you make the gain: paragraph 855-40(2)(a) of the ITAA 1997; and • the gain is attributable to a CGT event happening to a 'CGT asset of a trust' (the CGT event trust) that is the fixed trust: subparagraph 855-40(2)(b)(i) of the ITAA 1997; and • the asset is not taxable Australian property for the CGT event trust at the time of the CGT event: subparagraph 855-40(2)(c)(i) of the ITAA 1997. Subsection 855-40(3) provides that you are not liable to pay tax as a trustee of a fixed trust in respect of an amount to the extent that the amount gives rise to a capital gain that is disregarded for a beneficiary under subsection (2). In this case, the non-resident beneficiary will receive an in specie distribution of shares and securities from the trust to end their right to receive income from the trust. As previously mentioned, CGT event E6 will happen to both the trustee and the non-resident beneficiary. In regard to the trustee, the E6 event will happen to a CGT asset of the trust, that is, the disposal of the shares and securities to the beneficiary. However, in regard to the non-resident beneficiary, the E6 event will happen to the non-resident beneficiary's CGT asset, their life interest in the trust, which is not "a 'CGT asset' of a trust" as required by subparagraph 855-40(2)(b)(i) of the ITAA 1997. Therefore, the non-resident beneficiary will not be able to disregard any capital gain they make from CGT event E6 under subsection 855-40(2) of the ITAA 1997. | Detailed Reasoning - Cash distribution: CGT event C2 in section 104-25 of the ITAA 1997 happens if your ownership of an intangible CGT asset ends in certain ways, including because the asset expires or is redeemed, cancelled, released, discharged, satisfied, abandoned, surrendered or forfeited. A right is an intangible asset. The time of the event is when you enter into the contract that results in the asset ending, or if there is no contract, the event happens when the asset ends. You make a capital gain if the capital proceeds from the ending are more than the asset's cost base. You make a capital loss if those capital proceeds are less than the asset's reduced cost base (subsection 104-25(3). A capital gain or capital loss you make is disregarded if you acquired the asset before 20 September 1985 (104-25(5)). In this case, after the Deed is given effect to, the non-resident beneficiary will receive a cash distribution from Individual X's estate that will end their right to receive any future distributions from the estate. Therefore, CGT event C2 will happen at the time of the distribution and the non-resident beneficiary will make a capital gain or loss. As mentioned above, section 855-10 of the ITAA 1997 provides that you can disregard a capital gain or loss from a CGT event if: a) you are a foreign resident, or the trustee of a foreign trust for CGT purposes, just before the CGT event happens; and b) the CGT event happens in relation to a CGT asset that is not taxable Australian property. Consequently, the non-resident beneficiary cannot disregard a capital gain or loss they make from CGT event C2 happening to their life interest in the income of the trust, which is the relevant CGT asset, as the asset is deemed to be taxable Australian property. As mentioned above, section 855-40 of the ITAA 1997 disregards a capital gain that a foreign-resident beneficiary of a fixed trust is taken to have as a result of a CGT event happening to a CGT asset of that trust if, at the time of the event, the CGT asset was not taxable Australian property of the trust. Once again, the relevant CGT asset here is the non-resident beneficiary's right to receive income from the trust which is not a 'CGT asset of a trust' as required by subparagraph 855-40(2)(b)(i) of the ITAA 1997. Therefore, subsection 855-40(2) of the ITAA 1997 will not apply to disregard any capital gain the non-resident beneficiary may make from CGT event C2 happening. Question 6 - T estamentary trust Y - CGT events E6 and C2 | Detailed Reasoning - In specie distribution of shares: In this case, the foreign resident beneficiary and life interest owner of Individual Y's estate will receive an in specie distribution of shares and securities (plus a cash distribution) to end their right to receive income from the Estate. For the same reasons as discussed above in Question 5: • section 855-10 of the ITAA 1997 will not apply to disregard a capital gain or loss the non-resident beneficiary makes from CGT event E6 happening to their life interest in the income of the estate, which is the relevant CGT asset, as the asset is deemed to be taxable Australian property. • the non-resident beneficiary will not be able to disregard any capital gain they make from CGT event E6 under subsection 855-40(2) of the ITAA 1997 as the relevant CGT asset is the non-resident beneficiary's interest in the income of the trust which is not 'a CGT asset of a trust' as required by subparagraph 855-40(2)(b)(i) of the ITAA 1997. | Detailed Reasoning - Cash distribution: As explained above in Question 5: • CGT event C2 will happen at the time of the cash distribution and the non-resident beneficiary will make a capital gain or loss. • section 855-10 of the ITAA 1997 will not apply to disregard a capital gain or loss the non-resident beneficiary makes from CGT event C2 happening to their life interest in the income of the Estate, which is the relevant CGT asset, as the asset is deemed to be taxable Australian property. • the non-resident beneficiary will not be able to disregard any capital gain they make from CGT event C2 under subsection 855-40(2) of the ITAA 1997 as the relevant CGT asset is the non-resident beneficiary's interest in the income of the trust which is not 'a CGT asset of a trust' as required by subparagraph 855-40(2)(b)(i) of the ITAA 1997. Question 7 - T estamentary trust X - CGT event K6 Broadly, CGT event K6 in section 104-230 of the ITAA 1997 is designed to stop the potential avoidance of CGT where, instead of an entity disposing of an asset it acquired on or after 20 September 1985, the owners of pre-CGT interests in the interposed entity dispose of those interests. CGT event K6 happens if all of the following conditions are satisfied: • you own shares in a company or an interest in a trust you acquired before 20 September 1985; paragraph 104-230(1)(a) • CGT event A1, C2, E1, E2, E3, E5, E6, E7, E8, J1 or K3 happens in relation to the shares or interest; (paragraph 104-230(1)(b) of the ITAA 1997) • there is no roll-over for the other CGT event (paragraph 104-230(1)(c) of the ITAA 1997), and • immediately before the other event happens the market value of the post-CGT property of the company or trust is at least 75 per cent of the net value of the company or trust (paragraph 104-230(1)(d) and subsection 104-230(2) of the ITAA 1997). The time of CGT event K6 is when the other event happens. CGT event E6 is a relevant event for the purposes of CGT event K6. However, for K6 to happen in this case: • the non-resident beneficiary must have an 'interest in a trust' that was acquired before 20 September 1985, and • CGT event E6 must happen in relation to that interest in the trust. However, we have determined above that CGT event E6 happened in relation to the non-resident beneficiary's right to receive income from Testamentary trust X where the right, the interest in a trust, arose after 1985. The contingent interest that the non-resident beneficiary had prior to Individual Y passing away after 1985 ceased at that time, and the non-resident beneficiary then acquired the life interest which was vested and indefeasible from that point on. Consequently, the non-resident beneficiary does not hold an interest in a trust that was acquired before 20 September 1985 for the purposes of CGT event E6 and, therefore, CGT event K6 will not happen when CGT event E6 happens. | Detailed Reasoning - Question 8 - Anti-overlap provision: Section 118-20 of the ITAA 1997 contains anti-overlap provisions which operate to reduce any capital gains by any amounts which are included in assessable income under a provision of the ITAA outside of Part 3-1. As previously mentioned, paragraph 82 of TR 2006/14 states that if both the trustee and life owner make a capital gain from CGT event E6 happening, the anti-overlap rule in section 118-20 of the ITAA 1997 can apply to reduce the life interest owner's capital gain by the amount of the trust capital gain included in their assessable income under the trust provisions of the ITAA. Subsection 98(2A) of the ITAA 1936 provides that where an individual beneficiary of a trust who is presently entitled to a share of the income of the trust estate and is a non-resident at the end of the relevant year of income, the trustee is assessed on the share of the net income of the trust estate that is attributable to a period when the beneficiary was not a resident and is also attributable to 'sources in Australia'. Taxation Determination TD 2022/12 discusses whether the source concept in Division 6 of Part III of the ITAA 1936 is relevant in determining whether a non-resident beneficiary of a resident trust, or trustee of that trust, is assessed on an amount of trust capital gain arising under Subdivision 115-C of the ITAA 1997. It provides, relevantly: • the source concept in Division 6 of Part III of the ITAA 1936 is not relevant in determining whether an amount of a trust capital gain is assessable to a non-resident beneficiary or trustee • the trustee is assessed under section 98 of the ITAA 1936 on trust capital gains attributable to the non-resident beneficiary (also where the beneficiary is made specifically entitled to the gain). The source concept in subsection 98(2A) of the ITAA 1936 has no application in relation to the capital gains as section 115-220 of the ITAA 1997 increases the amount assessable to the trustee under section 98 of the ITAA 1936 without regard to those conditions • capital gains are included in the calculation of the non-resident beneficiaries' net capital gain for the income year under section 115-215 of the ITAA 1997. However, the beneficiary is entitled to a refundable tax offset for the tax the trustee pays on their behalf under subsection 98A(2) of the ITAA 1936 • Division 6E of Part III of the ITAA 1936 prevents double taxation by ensuring capital gain amounts are disregarded in determining the trust income and net income that may be assessed through the ordinary operation of Division 6 of Part III of the ITAA 1936 (eg sections 97 or 98 of the ITAA 1936). In this case, as the trustees of the testamentary trusts will be assessable on trust capital gains attributable to the non-resident beneficiary in respect of CGT event E6, there will be no amount of the trust capital gain included in the non-resident beneficiary's assessable income under the trust provisions of the ITAA 1936 or any other provision of the ITAA outside of Part 3-1. Further, in respect of CGT event C2, there will also not be any other amount which will be included in the non-resident beneficiary's assessable income under a provision of the ITAA outside of Part 3-1. Therefore, the anti-overlap rule in section 118-20 of the ITAA 1997 will have no application.