Recent determinations by the Australian Tax Office perpetuate international tax trust morass

The Australian Tax Office has made two recent determinations which sink the law in this area into further confusion.

The first draft determination, TD 2019/D6, concludes that a foreign resident beneficiary presently entitled to a capital gain of an Australian resident non-fixed trust on an asset which is not taxable Australian property (non-TAP) is assessable on the capital gain even though that would not occur if the foreign resident made the same gain directly rather than through the trust. A simple example is a discretionary trust with an Australian resident trustee and foreign resident beneficiary selling a portfolio interest in shares listed on the Australian stock exchange. The second determination, TD 2019/7, concludes that a foreign resident beneficiary of a resident trust is assessable on non-TAP capital gains whether or not the gain has a source in Australia. So extending the previous example the non-resident beneficiary of the discretionary trust will be taxable even if the trust property has nothing to do with Australia and the gain is not Australian sourced, such as the trustee selling shares in a UK listed company on the London stock exchange through a broker in and under a contract made and executed in the UK.

Click here to read a briefing which discusses these confusing determinations and its implications.