Private ruling: Foreign trust distribution - 99B
Date of advice: 20 April 2026
Published: 13 July 2026
Ruling period: Year ended 30 June 20YY | Year ended 30 June 20YY
Date scheme commenced: DD MM YYYY

Ruling: Q1: Will the lump sum payment you received from the foreign trust be subject to tax in Australia under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. | Q2: Is the amount of the trust distribution that is included in your assessable income reduced by the part of the distribution that represents corpus of the trust (except to the extent it relates to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of a year of income) under paragraph 99B(2)(a) of the ITAA 1936? | A2: Yes.

Relevant facts and circumstances: You are Australian resident for tax purposes. You are one of the children of the deceased. The deceased was a resident of Country A. The deceased won the lottery in Country A. On DD MM YYYY, the deceased established the foreign Trust A. The deceased was the settlor of Trust A. Trust A is a Country A discretionary trust. The trustees of Trust A were: • the deceased; • Person A; and • Person B. The funds in Trust A were held in the names of the trustees. You were a secondary discretionary beneficiary of Trust A. As a discretionary trust, you did not have the right to demand distribution as a beneficiary. In or around YYYY, Trust A invested in term deposits. On DD MM YYYY, the deceased executed their final Will and testament. Under the deceased Will, they left the residue of their estate to their trustees upon trust to transfer to the Trustees for the time being of the family trust known as Trust A, which was settled by the deceased in terms of a deed of trust dated the DD MM YYYY to be held by the Trustees in terms of that deed. On DD MM YYYY, the deceased made a codicil to the Will updating the trustees and executors named. On DD MM YYYY, the deceased retired as the trustee of Trust A. On DD MM YYYY, the deceased passed. On DD MM YYYY, probate was granted to the executor named under the Will. Under the Will, the residue of the estate was transferred to Trust A. On DD MM YYYY, Trust A received a letter stating the term deposits which mature on DD MM YYYY relating to the investments will interest after tax. On DD MM YYYY, both term deposits matured. On DD MM YYYY, Trust A transferred your share of the funds $XX from the term deposits to your solicitor's account. Your solicitors will transfer the funds to you during the ruling period. You do not know if Country A will tax the lump sum.

Relevant legislative provisions: 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 770-10

Reasons for decision: Summary: Yes. The family trust is a foreign trust and the amount paid to you will be subject to tax under section 99B of the ITAA 1936. | Detailed Reasoning - Question 2: Is the amount of the trust distribution that is included in your assessable income reduced by the part of the distribution that represents corpus of the trust (except to the extent it relates to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer of a year of income) under paragraph 99B(2)(a) of the ITAA 1936? | Summary: Yes. You will need to include in your tax return the distribution amount and exclude the amount that represents corpus. | Detailed Reasoning - Presently entitled: A discretionary trust is a trust allowing for the separation of beneficial interest in property from legal ownership, where the beneficial interest is suspended during the life of the trust subject to exercise of discretion by the trustee. As stated in paragraph 10 of Taxation Determination TD 2018/9 Income tax: deductibility of interest expenses incurred by a beneficiary of a discretionary trust on borrowings on-lent interest-free to the trustee , until a beneficiary of a discretionary trust is made presently entitled to income, that beneficiary has no more than a right to be considered by the trustee in relation to the appointment of trust income. This right to be considered, or mere expectancy, is too contingent or uncertain to be a source of assessable income reasonably expected by the beneficiary. A beneficiary can be presently entitled where they have an indefeasible (i.e. cannot be made void) and vested interest in possession (i.e. right to present enjoyment) in the trust income. A beneficiary is only presently entitled to income if they have: (a) an interest in the income which is both vested in interest and vested in possession, and (b) a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment. (paragraph 13 of TD 2018/9) As stated in paragraph 14 of TD 2018/9, until income is derived by the trust to which a beneficiary can be made entitled and an irrevocable resolution has been made by a trustee of a discretionary trust to appoint income in favour of a beneficiary, that beneficiary cannot be presently entitled to income of the trust estate. Ordinarily, present entitlement will not arise until the end of the income year, even if the income is appointed under an early resolution. This is because ordinarily it is not possible to know until at or after year end whether there is any income of the trust in respect of the year available to be distributed. The Trust is a discretionary trust, where you cannot demand payment from the trustees. | Detailed Reasoning - Section 99B: The family trust is a foreign trust and the amount paid to you will be subject to tax under section 99B of the ITAA 1936. Generally, section 99B deals with the receipt of trust amounts that have not previously been subject to tax in Australia. It applies where an Australian resident for tax purposes receives a lump sum payment from a foreign trust. Subject to subsection 99B(2) of the ITAA 1936, subsection 99B(1) requires an Australian beneficiary to include in their assessable income an amount of trust property that is paid to, or applied for their benefit, provided the Australian beneficiary was resident at any time during the income year in which the payment or application was made. However, subsection 99B(2) reduces the amount included in assessable income under subsection 99B(1) by: • for paragraph 99B(2)(a) - so much of the amount as represents corpus of the trust estate, except to the extent to which it is attributable to amounts derived by the trust estate that, if they had been derived by a taxpayer being a resident, would have been included in the assessable income of that taxpayer for a year of income; and • for paragraph 99B(2)(b) - so much of the amount as represents an amount that, if it had been derived by a taxpayer being a resident, would not have been included in the assessable income of that taxpayer of a year of income. Taxation Determination TD 2024/9 Income tax: factors taken into account in applying paragraphs 99B(2)(a) and (b) of the Income Tax Assessment Act 1936 explains that corpus, in the context in which it is used in section 99B of the ITAA 1936 refers to trust capital which is represented by the assets of the trust, excluding income which has not been accumulated. In determining whether an amount distributed represents corpus, for the purposes of paragraph 99B(2)(a), regard is had to the trust property distributed. The accounting records of the trust may assist in evidencing this but are not determinative of what the amount represents. Accumulated income (for example, bank interest or share dividend income) is included in corpus, but it will be corpus which is attributable to amounts which would be included in assessable income if derived by a hypothetical resident taxpayer. Accordingly, the amount assessed under subsection 99B(1) will not be reduced by an amount attributable to accumulated income under paragraph 99B(2)(a). Please refer to Practical Compliance Guideline PCG 2024/3 Section 99B of the Income Tax Assessment Act 1936 - ATO compliance approach for additional information on evidential and record keeping requirements in relation to foreign trust distributions (paragraphs 32 to 61). For further information about the Practical Compliance Guideline, please visit the Legal Database on the ATO website ato.gov.au and search for PCG 2024/3. Section 770-10 of the ITAA 1997 provides that a foreign income tax offset can be claimed for foreign income tax paid by a taxpayer in respect of an amount that is included in their assessable income. The taxpayer must have paid the foreign income tax before an offset is available. A taxpayer is deemed to have paid the foreign income tax if the foreign tax has been withheld from the income at its source. | Detailed Reasoning - Application to your case: In your case, you will receive a lump sum from a foreign trust while you are an Australia resident for tax purposes. The amount of the lump sum may include amounts that represent earnings. Earnings of Trust A are not taken to represent corpus, as the earnings are attributable to income derived by Trust A which would have been subject to tax had the earnings been derived by a resident taxpayer. Therefore, section 99B of the ITAA 1936 applies to you so that: • the proportion of the amounts you will receive that represent corpus deposited into Trust A are excluded from your assessable income; and • the proportion of the amounts you will receive that represent earnings (from the date the funds were deposited into Trust A) are included in your assessable income. You will need to include in your tax return the distribution amount and exclude the amount that represents corpus. You may also be eligible for a foreign income tax offset for the foreign tax paid.