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Tax Determinations Released – Trust Capital Gains of Foreign Residents
The ATO has released two related determinations on the taxation of trust capital gains that flow to foreign resident beneficiaries via a resident trust following the Full Federal Court’s decision in Peter Greensill Family Co Pty Ltd (Trustee) v Commissioner of Taxation [2021] FCAFC 99.
Relevance of source rules for trust capital gains – TD 2022/12
TD 2022/12, which finalises TD 2019/D7, provides that a non-resident beneficiary of a resident trust is assessable on an amount of trust capital gain irrespective of whether the gain has a source in Australia.
This is because the Commissioner considers that, following the 2011 trust streaming amendments, the source concept in the trust provisions (Division 6 of Part III of the ITAA 1936) is no longer relevant when determining whether an amount of trust capital gain is assessable to a non-resident beneficiary or trustee (as this is to be determined solely under the capital gains tax provisions). The same view 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 section 115-222 of the ITAA 1997 applies.
The Determination applies to all arrangements entered into before and after its date of issue. However, the Commissioner will not devote compliance resources to identify arrangements which would give rise to adjustments solely on the basis of the Determination for the 2018-19 and earlier income years.
Foreign-resident CGT exemption and non-fixed trusts – TD 2022/13
TD 2022/13, which finalises TD 2019/D6, confirms the Commissioner’s view that Division 855 of the ITAA 1997 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.
As such, the Commissioner considers that a foreign-resident beneficiary may be treated as having extra capital gains under section 115-215(3) if a resident trust’s net income includes a net capital gain (even though no CGT event happened directly to them). This is because, while section 855-10(1) allows a foreign resident to disregard a capital gain or loss from a CGT event in relation to an asset that is not taxable Australian property, the section does not apply to disregard capital gains that a foreign-resident beneficiary is deemed to have by operation of section 115-215(3) (as such gains are not from a CGT event that happened to them).
The Determination also clarifies that:
- section 855-40 only disregards a capital gain a foreign-resident beneficiary has because of section 115-215(3) if the trust is a fixed trust; and
- section 768-915(1) does not disregard capital gains a temporary-resident beneficiary has because of section 115-215(3).
Notably, the Determination applies retrospectively.
August exchange rates released
The ATO has released the average foreign exchange rates for August 2022 for converting foreign income into Australian dollars.
Rulings and Addendum issued
The ATO has issued the following:
- CR 2022/78 — Vimy Resources Ltd — Scrip for scrip roll-over;
- CR 2022/79 — New World Resources Ltd — Return of capital by distribution of shares in Koba Resources Ltd;
- PR 2022/7 — Bell Equity Lever — Instalment receipts;
- PR 2022/8 — Bell Geared Equities Investment;
- PR 2021/12A1 – Addendum to PR 2021/12 — Challenger Lifetime Annuity (Liquid Lifetime).
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