Payments and assets subject to section 99B
Section 99BExternal Link of the Income Tax Assessment Act 1936 (ITAA 1936) applies when money or another asset of a foreign trust is paid to you or applied for your benefit, and you are a beneficiary of the foreign trust. Trust assets can include cash, land, shares and other assets.
The amount or value of the asset is included in your assessable income in the income year that you receive it.
Trust assets paid to you or applied for your benefit can include:
- loans to you by the trustee directly or indirectly through another entity
- amounts paid by the trustee to a third party on your behalf
- amounts that are described as gifts from family members, but are sourced from the trust
- distributions paid to you or trust assets (such as shares) transferred to you by the trustee.
Exceptions – when section 99B does not apply
You may not have to include a payment or other asset or benefit you receive from a foreign trust in your assessable income if it either:
- has already been assessed to you (or the trustee) under another provision of the income tax law
- represents an amount of corpus which is not otherwise removed by the hypothetical taxpayer test.
We may ask you for further information to verify that the exceptions apply in your circumstances.
You should seek further advice, including supporting documents, from the trustee of the foreign trust about any money or other assets you receive from the trust.
If you receive money or other assets from a foreign trust
You need to understand the nature and source of the money or other assets you receive from overseas.
If you receive money from a foreign trust, either directly, or indirectly through another entity, you may need to ask further questions to determine whether the amount must be included in your assessable income.
Questions you may need to ask include:
- Whether you are a beneficiary of the foreign trust.
- Where the foreign trust obtained the money. This will assist in determining the source of the money.
- Why the money was paid to you; for example, is it payment for services, a gift, a distribution or a loan. This will assist in understanding the nature of the payment.
Similar questions are relevant if you receive other assets or benefits from a foreign trust. Section 99CExternal Link of the ITAA 1936 outlines the circumstances, including specific situations, in which amounts or assets will be considered to have been applied for the direct or indirect benefit of a beneficiary.
Examples when section 99B may apply:
- An Australian beneficiary receives money from a family member who received it from a foreign trust.
- An Australian beneficiary receives a capital distribution from a foreign trust out of the trust's accumulated prior year income.
- Parents gift an amount of money to their child from their foreign family trust (or through another intermediary) and the child is also a beneficiary of the trust.
- An Australian beneficiary receives a loan from a foreign trust that is sourced from prior year income derived by the trust.
Where section 99B applies to include an amount in your assessable income, section 102AAMExternal Link interest may also apply, resulting in an additional income tax liability.
We're often alerted to potential section 99B cases as a result of AUSTRACExternal Link (Australian Transaction Reports and Analysis Centre) monitoring of payments to Australian residents from overseas. This data is matched with information reported in tax returns.
Guidance material
- TA 2021/2 Disguising undeclared foreign income as gifts or loans from related overseas entities
- TD 2017/24 Where an amount included in a beneficiary's assessable income under subsection 99B(1) of the ITAA 1936 had its origins in a capital gain from non-taxable Australian property of a foreign trust, can the beneficiary offset capital losses or a carry-forward net capital loss ('capital loss offset') or access the CGT discount in relation to the amount?
- PCG 2024/D1 Section 99B of the Income Tax Assessment Act 1936 – ATO compliance approach
- TD 2024/D2 Income tax: factors taken into account in applying the exceptions to section 99B of the Income Tax Assessment Act 1936 contained in paragraphs 99B(2)(a) and 99B(2)(b)