Private ruling: Trust income
Date of advice: 30 April 2019
Published: June 2019
Ruling period: Year ending 30 June 2019
Date scheme commenced: 1 July 2018

Ruling: Q1: Is the trust income distribution assessable income under section 97 of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1936 s ection 97

Reasons for decision: Summary: The taxation of trust income is outlined in Division 6 of the ITAA 1936. Under subsection 97(1) of the ITAA 1936, the assessable income of a beneficiary who is not under a legal disability and is presently entitled to a share of the income of the trust estate, includes that share of the net income of the trust estate. Where a beneficiary receives a proportion of the income of the trust, then that beneficiary is presently entitled to that proportion of the trust income. In your case it is considered that you were presently entitled to the income received. Therefore you are assessable on the trust income under section 97 of the ITAA 1936. In determining liability to Australian tax for Australian residents on foreign sourced income, it is necessary to consider not only the income tax laws but also the laws under the International Tax Agreements Act 1953 (Agreements Act) and any applicable double tax agreement contained in the Australian Treaties Series (ATS). Section 4 of the Agreements Act incorporates that Act with the ITAA 1936 and the Income Tax Assessment Act 1997 (ITAA 1997) so that those Acts are read as one. The Agreements Act effectively overrides the ITAA 1936 and ITAA 1997 where there are inconsistent provisions (except for some limited situations that are not relevant in the present case). The relevant agreement does not deal specifically with trust distributions. Therefore we need to consider the article about 'Other income'. Under this article, where a resident of Australia for tax purposes receives income, the income is taxable in Australia. Thus your income distribution from the foreign trust is taxable in Australia. As you are an Australian resident, the income distribution from the trust is taxable in Australia and forms part of your assessable income.

A bond was taken out several years ago by a trust. | The bond was terminated recently. | The bond is not a life assurance policy. | After the bond ended and cashed in, you received your share of the funds. | You received funds from the overseas trust as a beneficiary. | You are not under a legal disability.