Tax Laws Amendment (2007 Measures No. 3) Act 2007 (79 of 2007)

Schedule 9   Non-resident trustee beneficiaries

Income Tax Assessment Act 1936

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.