1 Does the transfer of ownership of units from Trust 1 to Trust 2 result in an amount to be included in your assessable income under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936), representing the value of the units transferred?
Yes. Question 2 Will all of the amount included in your assessable income under section 99B(1) of ITAA 1936, be reduced under paragraph 99B(2)(a) of ITAA 1936 as it represents corpus of the trust? Answer No. Question 3 Will part of the amount included in your assessable income under section 99B(1) of ITAA 1936, be reduced under paragraph 99B(2)(a) of ITAA 1936 as it represents corpus of the trust? Answer Yes. This ruling applies for the following period: Year ending 30 June 20XX The scheme commenced on: 1 July 20XX
You were a Country A resident since birth - DD MM YYYY. You moved to Australia in Month 20YY and are now a dual citizen of Country A and Australia. You've been an Australian resident for tax purposes since Month 20YY but earned no income before age 18. In Month 20YY your grandparent (Person A) invested in a unit trust account (Trust 1) in Country A. Person A designated you as the nominated beneficial owner of Trust 1, creating a bare (absolute) trust for you. Trust 1 was a collective investment which invests in various funds with the aim of achieving capital growth. As the investor, Person A had control over Trust 1 until you reached age 18, at which time you were entitled to the investment and any income from it. You advised the following contributions were made to Trust 1: • XX on DD MM YYYY • XX (XX monthly direct debits between DD MM YYYY - DD MM YYYY) • XX (XX monthly direct debits between DD MM YYYY - DD MM YYYY) Total = XX.XX All dividends and interest earned by Trust 1 were reinvested into the Trust. You turned 18 on DD MM YYYY.
On DD MM YYYY a stock transfer was completed from Trust 1 to a second unit trust (Trust 2), opened in your name. Ownership of units you were entitled to were transferred to Trust 2. Based on the stock transfer confirmation you provided, the following units were transferred to you: Table 1: Stock transfer units Investment Units Value as at DD MM YYYY XXXXXXX XX.XX XX.XX XXXXXXX XX.XX XX.XX Total: XX.XX XX.XX As per the Valuation provided, as of DD MM YYYY the value of the units transferred to you was XX.
Income Tax Assessment Act 1936 subsection 99B(1) Income Tax Assessment Act 1936 subsection 99B(2)(a) Does IVA apply to this private ruling? Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. If you w
Broadly, section 99B of the Income Tax Assessment Act 1936 (ITAA 1936) deals with the receipt by a taxpayer of trust amounts that have not previously been subject to tax in Australia. It applies where an Australian resident for tax purposes receives an amount from a foreign trust. Subsection 99B(1) of ITAA 1936 provides that where a beneficiary who was an Australian resident at any time during an income year, is paid an amount from a trust, or has an amount of trust property applied for their benefit, that amount is to be included in the assessable income of the beneficiary in the income year it is paid. 'Paid' includes any amount a beneficiary has received from a trust estate. 'Applied for their benefit' includes any property from a trust estate which holds value and has been made available for the benefit of a beneficiary.
The breadth of subsection 99B(1) is confirmed by subsection 99C(1) which states that regard is to be had to all benefits or amounts that have been accrued at any time to the beneficiary (whether or not the beneficiary had rights at law or in equity in or to those benefits) as a result of the derivation of, or in relation to, that amount, irrespective of the nature or form of the benefits. Subsection 99B(2) of the ITAA 1936 reduces the amount to be included in the beneficiary's assessable income under subsection 99B(1) by so much of that amount as represents, relevantly: a) corpus of the trust, (but not to the extent that it is attributable to income derived by the trust which would have been subject to tax had it been derived by a taxpayer being a resident). To be considered corpus, an amount or asset must have been an original capital contribution to the trust. Income can be distinguished as a gain generated by the corpus - for example, dividends and interest paid on investments. Application to your circumstances
The relevant units were transferred from Trust 1 to Trust 2. While you did not receive them directly, you still had an amount applied for your benefit. Since you are a beneficiary of Trust 1, and were resident of Australia during the relevant time, subsection 99B(1) of the ITAA 1936 will apply. However, this is subject to the exceptions contained in subsection 99B(2), relevantly whether the amount represents corpus of the trust estate. The total value of the units transferred to the new trust is not solely attributable to the value of the original corpus as it includes income in the form of dividends and interest earned on the initial investment. Therefore: • the amounts representing contributions made by Person A are considered corpus and therefore excluded under paragraph 99B(2)(a) of ITAA 1936, and • the amounts that represent dividends and interest earned, are assessable under subsection 99B(1) of ITAA 1936 and must be included in your 20XX income tax return.