Receiving Payments or Assets from Foreign Trusts: What You Need to Know
The Australian Taxation Office (ATO) is increasing its scrutiny of Australian residents who receive payments or assets from foreign trusts. Under section 99B of the Income Tax Assessment Act 1936 (ITAA 1936), these amounts may need to be included in assessable income—unless a specific exemption applies.
What Qualifies as a Foreign Trust Payment?
If you receive money or assets from an overseas trust, it’s important to understand that the ATO considers various types of transactions as potentially taxable, including:
- Loans provided by the trustee, either directly or indirectly
- Payments made by the trustee to a third party on your behalf
- Gifts from family members that originate from the trust
- Distributions or asset transfers from the trust
While there are exemptions—such as amounts that have already been taxed in Australia or those classified as corpus—certain distributions remain subject to Australian tax law. In particular, if a foreign trust’s accumulated income or gains have not been taxed in Australia but would have been if earned by an Australian resident, they may still be assessable.
ATO Expectations for Taxpayers
The ATO expects taxpayers receiving funds or property from overseas to investigate the source of the funds and determine whether they need to be declared as taxable income. This is especially relevant in scenarios such as:
- Receiving money from a family member who originally obtained it from a foreign trust
- Benefiting from a capital distribution made from a foreign trust’s accumulated prior-year income
- Receiving funds classified as a “gift” from a foreign family trust while also being a named beneficiary of the trust
- Obtaining a loan from a foreign trust, where the loan is sourced from the trust’s prior-year income
Given the complexities of foreign trust taxation, it is crucial to seek professional advice to ensure compliance with ATO regulations and avoid potential penalties.
Need Help?
If you’re uncertain about how these rules may apply to you, Simmons Livingstone can provide expert guidance on tax obligations related to foreign trusts. Contact us today for tailored advice at 1800 618 800 or via email admin@simmonslivingstone.com.au.
