TAX LAWS AMENDMENT (2007 MEASURES NO. 3) ACT 2007 (NO. 79, 2007) - SCHEDULE 9 Non-resident trustee beneficiaries
TAX LAWS AMENDMENT (2007 MEASURES NO. 3) ACT 2007 (NO. 79, 2007) - SCHEDULE 9
Non-resident trustee beneficiaries
Income Tax Assessment Act 1936
1 Subsections 98(3) and (4)
Repeal the subsections, substitute:
(2A) If:
(a) a beneficiary of a trust estate who is presently entitled to a share of the income of the trust estate:
(i) is a non‑resident at the end of the year of income; and
(ii) is not, in respect of that share of the income of the trust estate, a beneficiary in the capacity of a trustee of another trust estate; and
(iii) is not a beneficiary to whom section 97A applies in relation to the year of income; and
(iv) is not a beneficiary to whom subsection 97(3) applies; and
(b) the trustee of the trust estate is not assessed and is not liable to pay tax under subsection (1) or (2) in respect of any part of that share of the net income of the trust estate;
subsection (3) applies to the trustee in respect of:
(c) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and
(d) so much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia.
(3) A trustee to whom this subsection applies in respect of an amount of net income is to be assessed and is liable to pay tax:
(a) if the beneficiary is not a company--in respect of the amount of net income as if it were the income of an individual and were not subject to any deduction; or
(b) if the beneficiary is a company--in respect of the amount of net income at the rate declared by the Parliament for the purposes of this paragraph.
Note: If the trust estate's net income includes a net capital gain, and the beneficiary is a company, Subdivision 115‑C of the Income Tax Assessment Act 1997 affects the assessment of the trustee.
(4) If:
(a) a beneficiary of a trust estate (the first trust estate ) who is presently entitled to a share of the income of the first trust estate:
(i) is, in respect of that share of the income of the first trust estate, a beneficiary in the capacity of a trustee of another trust estate; and
(ii) is not a beneficiary to whom subsection 97(3) applies; and
(b) a trustee of the other trust estate is a non‑resident at the end of the year of income;
the trustee of the first trust estate is to be assessed and is liable to pay tax in respect of so much of that share of the net income of the first trust estate as is attributable to sources in Australia at the rate declared by the Parliament for the purposes of this subsection.
Note: If the trust estate's net income includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 affects the assessment of the trustee.
2 Subsection 98A(1)
Omit "or (4)".
3 Paragraph 98A(2)(a)
After "trust estate", insert "(including, for a beneficiary that is a company, any tax paid in respect of that interest because of section 115‑ 220 of the Income Tax Assessment Act 1997 )".
4 At the end of section 98A
Add:
(3) If a beneficiary of a trust estate who is presently entitled to a share of the income of the trust estate:
(a) is not, in respect of that share of the income of the trust estate, a beneficiary in the capacity of a trustee of another trust estate; and
(b) is a non‑resident at the end of the year of income;
the assessable income of the beneficiary includes so much of the individual interest of the beneficiary in the net income of the trust estate as is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4).
Note: If the trust estate's net income includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 also affects the assessment of the beneficiary.
(4) To the extent that subsection (3) includes an amount in the assessable income of a beneficiary of a trust estate, the amount is not included by subsection (1) or section 100.
5 After section 98A
Insert:
98B Deduction from beneficiary's tax
(1) This section applies to a beneficiary of a trust estate for a year of income if the assessable income of the beneficiary of the year of income includes an amount covered by subsection (2).
(2) This subsection covers an amount (the assessable amount ) if:
(a) the amount is included in the assessable income of the beneficiary under one of the following:
(i) section 97;
(ii) subsection 98A(3);
(iii) section 100; and
(b) the amount does not represent income of the trust estate to which the beneficiary is presently entitled in the capacity of a trustee of another trust estate; and
(c) the amount is reasonably attributable to an amount (the taxed net income ) in respect of which the trustee of another trust estate is assessed and liable to pay tax (the subsection 98(4) tax ) under subsection 98(4) (including any tax paid under subsection 98(4) in respect of the taxed net income because of section 115‑222 of the Income Tax Assessment Act 1997 ).
(3) A proportion of the subsection 98(4) tax is to be deducted from the income tax assessed against the beneficiary of the year of income. That proportion is the same as the proportion of the taxed net income that gave rise to the assessable amount.
Note: To work out the proportion of the taxed net income that gives rise to assessable income for a beneficiary of another trust estate, you would have regard to the share of the income of each interposed trust estate to which a beneficiary (including a beneficiary in the capacity of a trustee) is presently entitled.
Example: The P Trust has two non‑resident trustee beneficiaries, the trustees of the S Trust and the H Trust. Each trustee is presently entitled to a 1/2 share of the income of the P Trust. The net income of the P Trust is $100,000. The trustee of the P Trust pays tax of $22,500 under subsection 98(4) in respect of the trustee of the S Trust's interest and $22,500 under subsection 98(4) in respect of the trustee of the H Trust's interest.
The S Trust has a non‑resident beneficiary, G, who is presently entitled to a 1/3 share of the income of the S Trust. The net income of the S Trust is $30,000. Subsection 98A(3) includes $10,000 in G's assessable income.
The taxed net income of the P trust is $50,000. The proportion of that taxed net income that gave rise to the $10,000 being included in G's assessable income is 1/3.This is because G had a 1/3 share of the income of the S Trust. $7,500 (1/3 x $22,500) is deducted from the income tax assessed against G.
If section 97, subsection 98A(3) or section 100 also includes amounts in the assessable income of any beneficiaries of the H Trust, each of those beneficiaries also works out the amount of the deduction against the income tax assessed against them in the same way.
(4) If the amount to be deducted under subsection (3) is greater than the amount of the income tax assessed against the beneficiary, the Commissioner must pay to the beneficiary an amount equal to the difference between those 2 amounts.
Note: See Division 3A of Part IIB of, and section 105‑65 in Schedule 1 to, the Taxation Administration Act 1953 for the rules about how the Commissioner must pay the entity. Division 3A of Part IIB allows the Commissioner to apply the amount owing as a credit against tax debts that the entity owes to the Commonwealth.
6 After paragraph 99B(2)(b)
Insert:
(ba) an amount that is non‑assessable non‑exempt income of the beneficiary because of section 802‑ 17 of the Income Tax Assessment Act 1997 ;
7 After subparagraph 99B(2)(c)(ii)
Insert:
or (iii) that is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4);
8 After section 99D
Insert:
99E Later trust not taxed on income already taxed under subsection 98(4)
Sections 98, 99 and 99A do not apply to so much of the net income of a trust estate of a year of income as is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4).
9 Subsection 100(1) (note)
Omit "Note", substitute "Note 1".
10 At the end of subsection 100(1)
Add:
Note 2: An amount is not included in assessable income under this section to the extent that subsection 98A(3) already includes it: see subsection 98A(4).
11 After subsection 100(1A)
Insert:
(1B) If a beneficiary in a trust estate who is under a legal disability or is deemed to be presently entitled to any of the income of the trust estate by virtue of the operation of subsection 95A(2):
(a) is a resident at the end of the year of income; and
(b) is not a beneficiary in any other trust estate and does not derive income from any other source;
the assessable income of the beneficiary includes so much of the individual interest of the beneficiary in the net income of the trust estate as is reasonably attributable to a part of the net income of another trust estate in respect of which the trustee of the other trust estate is assessed and is liable to pay tax under subsection 98(4).
Note 1: If the trust estate's net income includes a net capital gain, Subdivision 115‑C of the Income Tax Assessment Act 1997 also affects the assessment of the beneficiary.
Note 2: A credit is available under section 98B for an appropriate part of the subsection 98(4) tax.
Note 3: An amount is not included in assessable income under this section to the extent that subsection 98A(3) already includes it: see subsection 98A(4).
12 At the end of section 100
Add:
(3) However, an amount of tax is not to be deducted under subsection (2) from the income tax assessed against a beneficiary to the extent that the amount is deducted under section 98B from the income tax assessed against the beneficiary.
13 Subsection 128B(1) (note)
Omit "section 802‑15", substitute "sections 802‑15 and 802‑17".
Income Tax Assessment Act 1997
14 Section 12‑5 (table item headed "foreign residents")
Repeal the item.
15 Section 13‑1 (table item headed "trusts")
Before:
|
non‑resident beneficiary............................................................ |
98A(2)(a) |
insert:
|
beneficiary in a foreign trust..................................................... |
98B |
16 Subparagraphs 115‑215(2)(b)(ii) and (iii)
Repeal the subparagraphs, substitute:
(ii) under subsection 98A(1) or (3) of that Act; or
(iii) under section 100 of that Act.
17 Section 115‑220 (heading)
Repeal the heading, substitute:
115‑220 Special rule for assessing trustee under paragraph 98(3)(b) of the Income Tax Assessment Act 1936
18 Subsection 115‑220(1)
Omit "subsection 98(3)", substitute "paragraph 98(3)(b)".
19 Subsection 115‑220(2) (heading)
Repeal the heading, substitute:
Modification of paragraph 98(3)(b)
20 Subsection 115‑220(2)
Omit "subsection 98(3)", substitute "paragraph 98(3)(b)".
21 After section 115‑220
Insert:
115‑222 Special rule for assessing trustee under subsection 98(4) of the Income Tax Assessment Act 1936
Purpose
(1) The purpose of this section is to ensure a trustee assessed under subsection 98(4) of the Income Tax Assessment Act 1936 (in respect of the share of the net income to which a beneficiary that is a foreign resident in the capacity of a trustee is entitled) does not get the benefit in that assessment of the * discount percentage.
Modification of subsection 98(4)
(2) The trustee is to be assessed (and pay tax) under subsection 98(4) of the Income Tax Assessment Act 1936 as if the part of the share that is attributable to a * capital gain of the trust that was reduced under step 3 of the method statement in subsection 102‑5(1) were double the amount that it actually is.
22 Subparagraph 207‑50(3)(b)(ii)
Omit "paragraph 98A(1)(a) or (b), or paragraph 100(1)(a) or (b),", substitute "section 98A or 100".
23 After section 802‑15
Insert:
802‑17 Trust estates and foreign resident beneficiaries--exempting CFI from Australian tax
Foreign resident beneficiaries
(1) So much of a share of the net income of a trust as is reasonably attributable to the whole or a part of the * unfranked part of a * frankable distribution made by an * Australian corporate tax entity that the entity declares, in its * distribution statement, to be * conduit foreign income:
(a) is not assessable income and is not * exempt income of a beneficiary of the trust who:
(i) is a foreign resident; and
(ii) is presently entitled to the share of the income of the trust; and
(b) is an amount to which section 128B (Liability to withholding tax) of the Income Tax Assessment Act 1936 does not apply.
Note: A frankable distribution to which a part of the net income of a trust is reasonably attributable may be made by the Australian corporate tax entity to the trust directly, or to the trust indirectly through one or more interposed trusts.
(2) The declaration must be made on or before the day on which the * distribution is made.
Note: For a private company, this rule may bring forward the time at which the company is required to make its distribution statement: see section 202‑75.
Trusts
(3) The trustee of a trust is not to be assessed (and pay tax) under section 98, 99 or 99A of the Income Tax Assessment Act 1936 in respect of so much of the net income of the trust as is * non‑assessable non‑exempt income of a beneficiary of the trust under subsection (1).
24 Subsection 855‑40(3)
Repeal the subsection, substitute:
(3) You are not liable to pay tax as a trustee of a * fixed trust in respect of an amount to the extent that the amount gives rise to a * capital gain that is disregarded for a beneficiary under subsection (2).
25 Subsection 855‑40(4)
After "subsection 98A(1)", insert "or (3)".
26 Subsection 855‑40(9)
Repeal the subsection (including the notes).
27 Subparagraph 5(a)(iv)
Omit "subsection 98(3)", substitute "paragraph 98(3)(b) or subsection 98(4)".
28 Subparagraph 5(b)(iv)
Omit "subsection 98(3)", substitute "paragraph 98(3)(b) or subsection 98(4)".
29 Section 28
Repeal the section, substitute:
28 Rates of tax payable by certain trustees to whom section 98 of the Assessment Act applies
The rates of tax payable by a trustee of a trust estate in respect of a share of the net income of the trust estate in respect of which the trustee is liable to be assessed and to pay tax are:
(a) if paragraph 98(3)(b) of the Assessment Act applies--the rate specified in subsection 23(2) (about companies); and
(b) if subsection 98(4) of the Assessment Act applies--the maximum rate specified in column 3 of the table in Part II of Schedule 7 to this Act that applies for the year of income.
Note: If paragraph 98(3)(a) of the Assessment Act applies, see subsection 12(6).
30 Application
(1) Subject to items 31, 32 and 33 of this Schedule, the amendments made by this Schedule, other than items 13 and 23, apply in relation to income years starting on or after 1 July 2006.
(2) The amendments made by items 13 and 23 of this Schedule apply in relation to income years starting on or after 1 July 2005.
31 Transitional provision--trusts that ceased to exist before introduction
Subsection 98(4) of the Income Tax Assessment Act 1936 , as inserted by item 1 of this Schedule, does not apply in relation to a trustee of a trust that ceased to exist before the Bill for this Act was introduced into the House of Representatives.
32 Transitional provision--managed investment trusts
(1) This item applies in relation to the following income years:
(a) the first income year starting on or after 1 July 2006;
(b) the income year immediately prior to the first income year starting on or after the first 1 July after the day on which this Act receives the Royal Assent;
(c) each intervening income year (if any).
(2) In this item, expressions mean the same as in the Income Tax Assessment Act 1997 .
(3) Subsection 98(4) of the Income Tax Assessment Act 1936 , as inserted by item 1 of this Schedule, does not apply in relation to a trustee of a trust in relation to an income year to which this item applies if the conditions in subitems (4) to (6) are satisfied for the trust for the income year.
(4) The trust must be a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 for the income year.
(5) At each of the times in the income year mentioned in subitem (9), the trust must be a managed investment scheme (as defined by section 9 of the Corporations Act 2001 ) and be operated by a financial services licensee (as defined by section 761A of that Act) whose licence covers operating such a managed investment scheme.
(6) At each of the times in the income year mentioned in subitem (9), one of the following must be satisfied:
(a) units in the trust must be listed for quotation in the official list of an approved stock exchange in Australia;
(b) the trust must have at least 50 members (ignoring objects of a trust);
(c) one of the entities covered by subitem (7) must be a member of the trust.
(a) a life insurance company;
(b) a complying superannuation fund, a complying approved deposit fund or a foreign superannuation fund, being a fund that has at least 50 members;
(c) a trust that satisfies the conditions in subitems (4) and (5) and also satisfies the condition in paragraph (a) or (b) of subitem (6);
(d) an entity that is recognised, under a foreign law relating to corporate regulation, as an entity with a similar status to a managed investment scheme and that has at least 50 members;
(e) a trust:
(i) interests in which are owned directly by an entity covered by an earlier paragraph; or
(ii) interests in which are held indirectly by an entity covered by an earlier paragraph through a * chain of trusts;
where the conditions in subitems (4) and (5) are satisfied for the trust, or for each trust in the chain.
(8) The condition in subitem (6) is not satisfied for a trust at a time if, at that time, one foreign resident individual, directly or indirectly:
(a) held, or had the right to acquire, interests representing 10% or more of the value of the interests in the trust; or
(b) had the control of, or the ability to control, 10% or more of the rights attaching to membership interests in the trust; or
(c) had the right to receive 10% or more of any distribution of income that the trustee may make.
(9) The times in an income year are:
(a) for a trust that was in existence throughout the income year--the first day and the last day of the income year; and
(b) for a trust that comes into existence in the income year--the time that is 1 month after the time the trust comes into existence, and the last day of the income year; and
(c) for a trust that ceases to exist in the income year--the first day of the income year and the time that is 1 month before the time the trust ceases to exist.
33 Transitional provision--intermediaries
(1) This item applies in relation to the following income years:
(a) the first income year starting on or after 1 July 2006;
(b) the income year immediately prior to the first income year starting on or after the first 1 July after the day on which this Act receives the Royal Assent;
(c) each intervening income year (if any).
(2) In this item, expressions mean the same as in the Income Tax Assessment Act 1997 .
(3) Subsection 98(4) of the Income Tax Assessment Act 1936 , as inserted by item 1 of this Schedule, does not apply to a trustee of a trust in relation to so much of the net income of the trust of an income year to which this item applies as:
(a) represents income applied by the trustee in making a payment covered by subitem (4); and
(b) is attributable to a payment made by a trustee of another trust, if the conditions in subitems 32(4) to (6) of this Schedule are satisfied for the other trust for the income year in which the payment made by the trustee of the other trust is made.
(4) A payment made by a trustee of a trust is covered by this subitem if:
(a) the payment is made to an entity that is a foreign resident at the time of the payment; and
(b) at the time of the payment, the trust is carrying on a business that consists predominantly of providing a custodial or depository service (as defined by section 766E of the Corporations Act 2001 ) pursuant to an Australian financial services licence (as defined by section 761A of that Act); and
(c) the payment is made in the course of the business; and
(d) either:
(i) the trust is a resident trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 for the income year in which the payment is made; or
(b) the business is carried on in Australia through an Australian permanent establishment.
34 Transitional provision--application of former subsection 768‑605(4) and former section 768‑ 615 of the Income Tax Assessment Act 1997
(1) Former subsection 768‑605(4) of the Income Tax Assessment Act 1997 applies in relation to income years starting on or after 1 July 2006 as if the reference in that subsection to subsection 98A(1) were instead a reference to subsection 98A(1) or (3).
(2) Former section 768‑ 615 of the Income Tax Assessment Act 1997 does not apply in relation to income years starting on or after 1 July 2006.