Private ruling: Trust distributions
Published: February 2014
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Does section 99B of the Income Tax Assessment Act 1936 (ITAA 1936) apply to any distributions of corpus from the Trust to the taxpayer during the year ended 30 June 2014? | A1: No.

Relevant facts and circumstances: For Australian tax purposes the taxpayer is a temporary resident for the purposes of subdivision 768-R of the Income Tax Assessment Act 1997 (ITAA 1997). The taxpayer will be a temporary resident at all times during the period 1 July 2013 to 30 June 2014. The taxpayer has applied for a permanent resident visa and it is expected this will be received after 1 July 2014. The Trust is a non-resident trust. The taxpayer is a beneficiary of the Trust The trustee is an independent non-resident corporate trustee. The trustee has absolute control of the Trust and all administrative and investment decisions are undertaken by the trustee. The Trust is a non-resident for Australian tax purposes. The Trust deed allows for additional beneficiaries to be added, which may include a company. The corpus of the Trust is comprised of foreign sourced capitalised profits and capital introduced by the taxpayer. It has been the administrative practice of the trustee to make distributions out of trust corpus to the taxpayer with the distributions being sourced solely from the capital introduced (as opposed to capitalised profits that also form part of corpus) by the taxpayer since settlement of the trust. There is nothing to suggest that the trustee will deviate from this practice. For asset protection and estate planning reasons, the taxpayer has decided to incorporate a new non-resident company which will be owned by an Australian discretionary trust which will be controlled by the taxpayer. He/she will ask the trustee of the Trust to consider the following: a. to add the new company to the class of eligible beneficiaries; and b. resolve to distribute an amount from the trust corpus to the new company which may be sourced from either the original capital introduced or the capitalised income of the trust. The new company may pay or declare a dividend to the shareholder which may be distributed to the taxpayer and which will be used to fund non-concessional superannuation contributions and living expenses if the taxpayers receive a permanent residency visa to allow them to reside indefinitely in Australia.

Relevant legislative provisions: Income Tax Assessment Act 1936 - Section 99B | Income Tax Assessment Act 1997 - Section 768-910

Reasons for decision: Summary: Subsection 99B(1) of the ITAA 1936 provides that where at any time during an income year, an amount, being property of a trust estate, is paid to, or applied for the benefit of, a beneficiary of the trust estate who was a resident at any time during the year of income, the assessable income of the beneficiary shall, subject to certain exceptions, include that amount. However paragraph 99B(2)(a) of the ITAA 1936, exempts 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 of a year of income). In this case, while distributions to the taxpayer of introduced capital would come within the corpus exclusion distributions of capitalised profits would, prima facie, be assessable under section 99B. Section 768-910 of the ITAA 1997 provides that both the ordinary and statutory income derived by a temporary resident, directly or indirectly, from a non-Australian source is non-assessable non-exempt income. In this case, the taxpayer will be a temporary resident for Australian taxation purposes at all times during in the 2013-14 income year and the capitalised profits of the trust are foreign sourced. Accordingly, any distributions of capitalised profits to the taxpayer in the 2013-14 income year will be treated as non-assessable non-exempt income.