Private ruling: Income from a foreign trust
Date of advice: 18 January 2018
Published: May 2018
Ruling period: Financial year ended 30 June 20XX | Financial year ending 30 June 20XX | Financial year ending 30 June 20XX | Financial year ending 30 June 20XX | Financial year ending 30 June 20XX | Financial year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is money received from the corpus of a non-resident trust assessable if the corpus arose from donations to the trust by the trustees prior to you becoming a resident of Australia? | A1: No | Q2: Will money received from the accumulated surplus of the non-resident trust be assessable income if the surplus arose from income retained in the trust prior to you becoming a resident of Australia? | A2: Yes

Relevant facts and circumstances: You are the beneficiary of a foreign trust “The Trust” You became a resident of Australia on in the financial year ended 30 June 20XX The Trust has retained accumulated surpluses from prior years There are unpaid present entitlements to some of the beneficiaries. The corpus of The Trust is made of the initial contribution and subsequent donations to The Trust by the settlor. You did not contribute any of the gifts or donations to The Trust. You are an income and capital beneficiary of The Trust. You have received advice from a tax professional who concluded you will not have any foreign personal tax consequences as a non-resident. The Trust will be assessed on capital gains in its resident country

Relevant legislative provisions: Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1936 section 99B | Income Tax Assessment Act 1936 subsection 99B(1) | Income Tax Assessment Act 1936 subsection 99B(2) | Income Tax Assessment Act 1997 section 6-10 | Income Tax Assessment Act 1997 subsection 6-10(4) | Income Tax Assessment Act 1997 section 10-5 Reasons for decision | Section 6-10 of the ITAA 1997 provides that the assessable income of a resident taxpayer includes statutory income amounts that are not ordinary income but are included in assessable income by another provision. | Subsection 6-10(4) of the ITAA 1997 provides that for an Australian resident, your assessable income includes statutory income derived from all sources, whether in or out of Australia, during the income year. | Section 10-5 of the ITAA 1997 lists certain statutory amounts that form part of assessable income. Included in this list is income derived pursuant to sections 97 and 99B of the ITAA 1936. | Section 97 of the ITAA 1936 includes in a person’s assessable income distributions of income made by a trust to the person as a beneficiary. | Subsection 99B(1) of the ITAA 1936 provides that where, during a year of income, a beneficiary who was a resident at any time during the year is paid a distribution from a trust, or has an amount of trust property applied for their benefit, the amount is to be included in the assessable income of the beneficiary. | Subsection 99B(2) of the ITAA 1936 modifies the rule in subsection 99B(1) and has the effect that the amount to be included in assessable income under subsection (1) is not to include any amount that represents either: | ● the corpus of the trust (paragraph 99B(2)(a) of the ITAA 1936) | ● amounts that would not have been included in the assessable income of a resident taxpayer (paragraph 99B(2)(b) of the ITAA 1936), and | ● amounts previously included in the beneficiaries income under section 97 of the ITAA 1936 (paragraph 99B(2)(c) of the ITAA1936). | Paragraph 99B(2)(a) of the ITAA 1936 requires regard to be had to whether or not the amount derived by a trust estate was of a kind that would have been assessable if derived by a resident taxpayer. | Therefore, only income accumulated in the Trust that would have been taxable in Australia if the trust were a resident taxpayer and has not been previously subjected to tax in Australia would be assessable to the taxpayer under subsection 99B(1) of the ITAA 1936. | Thus, for example, if, in accordance with the terms of the trust, interest dividends or capital gains were accumulated and added to corpus and the capitalised amount is subsequently paid or applied for the benefit of a beneficiary, the beneficiary would be assessable on the amount provided (subject to other paragraphs of subsection 99B(2) of the ITAA 1936).