Court decides on taxable capital gains distributions

The Federal Court has determined whether trusts that distribute capital gains to non-resident beneficiaries are taxable and will need to be included in their assessable income.

   

The case of Peter Greensill Family Co Pty Ltd (as trustee) v Federal Commissioner of Taxation [2020] FCA 559 sought to determine whether the trustee was entitled to disregard its capital gains when it made a foreign resident beneficiary specifically entitled to those gains.

In making the decision, Judge Thawley found that:

  • It was the trustee that made the capital gain.
     
  • The trustee was not a foreign resident, so section 855-10 did not apply to the trustee.
     
  • Section 855-10 also did not apply to the foreign resident beneficiary as the distribution was not a capital gain “from” a CGT event, but a distribution of “amount” equal to the capital gain made by the trustee.

In a blog, Murray Shume of Cooper Grace Ward Lawyers noted the capital gains tax event occurred in relation to shares that were not taxable Australian property.

“Under section 855-10 of the Income Tax Assessment Act 1997, foreign residents are entitled to disregard any capital gain or loss from a CGT event that happens in relation to a CGT asset that is not taxable Australian property,” Mr Shume said.

“In Greensill, Thawley J found that section 855-10 did not apply when foreign beneficiaries were specifically entitled to capital gains from an Australian resident trust. Therefore, the trustee was required to pay tax on the capital gain.”

Mr Shume said the decision has implications for distribution resolutions for the 2020 income year.

“In deciding how to make distributions of capital gains for this income year, trustees should consider the tax consequences of distributing capital gains to non-resident beneficiaries,” Mr Shume said.

 

 

Adrian Flores
25 May 2020
smsfadviser.com

 

  • COVID-19 resources - Jobkeeper, Victoria Stage 4 Update

    Several new links have been added to the many already in this article, links that date back to the beginning of the COVID-19 pandemic. If you have any questions, or require further assistance, please send us an email or phone.

  • JobKeeper - Latest Update

    Treasurer Josh Frydenberg has announced that eligibility for JobKeeper 2.0 will now be based on single quarters, in light of the stage 4 restrictions facing Melbourne.

  • Estate planning and investments

    It's a question most of us ask eventually: what happens to our investments when we die?

  • Pandemic spurs a rise in investment scams

    In the current low interest rate environment, an investment product offering low-risk, high returns may sound very tempting.

IT Financial Services, ABN 48 097 884 976, is an Authorised Representative of Apogee Financial Planning. Apogee Financial Planning Limited ABN 28 056 426 932 is an Australian Financial Services Licensee and has its registered office at 105 - 153 Miller Street North Sydney NSW 2060. A member of the National group of companies.