Following court decision on the recent Greensill case, the Australian Taxation office (ATO) has finalised guidance on the taxation of capital gains that flow to foreign resident beneficiaries from a resident trust.
It has released two Tax Determinations.
a) TD 2022/12 Income tax: is the source concept in Div 6 of Pt III of the ITAA 1936 relevant in determining whether a non-resident beneficiary of a resident trust, or trustee for that trust, is assessed on an amount of trust capital gain arising under Subdiv 115-C of the ITAA 1997?
This determination confirms that the source rules under Div 6 of Pt III of ITAA 1936 are no longer relevant in determining whether a capital gain is assessable to a foreign-resident beneficiary or a trustee, as it is determined solely under the capital gains tax provisions;
The same applies to a non-resident beneficiary’s share of taxable Australian property gains of a non-resident trust and a trustee’s share of a capital gain to which s 115-222 of ITAA 1997 applies.
The “source concept’ refers to the limitation in Div 6 of Pt III of ITAA 1936 on the assessment of non-residents (or trustees) to amounts “ attributable to sources in Australia”.
The Commissioner will not use compliance resourced to identify arrangements for 2018–19 and earlier income years which would lead to adjustments on the basis of this Determination but may apply the law in this determination if asked to or becomes aware of a relevant arrangement in the course of compliance activities.
b) TD 2022/13 Income tax: does Subdivision 855-A (or s 768-915(1)) of the ITAA 1997 disregard a capital gain that a foreign-resident (or temporary-resident) beneficiary of a resident non-fixed trust has because of s 115-215(3)?
This determination confirms that Div 855 does not enable a foreign-resident beneficiary of a resident non-fixed trust to disregard their share of a non-taxable Australian property trust capital gain.
Section 855-40 of the ITAA 1997 only disregards a capital gain that a foreign-resident beneficiary has because of sub. 115-215(3) if the trust is a fixed trust.
Both Determinations, TD 2022/12 and TD 2022/13 apply to arrangements entered into before and after its issue.
For more information on how these determinations may impact you, reach out to Andersen in Australia.