Updated: Feb 3
Federal Court Rules that Non-Taxable Australian Property Capital Gains Distributed to a Non-Resident through a Discretionary Trust are Taxable to the Non-Resident Beneficiary
The case of Peter Greensill Family Co Pty Ltd (trustee) v FCT FCA 559 is about whether a non-resident should be taxable on gains made by an Australian trust where the assets were not taxable Australian property.
Trust Income is Taxed in the Hands of the Beneficiary
Ordinarily a beneficiary of a trust who is ‘presently entitled’ is assessed on a trust distribution usually in the same way they would have been assessed if they have earned that income directly. Most accountants and clients are used to thinking of trusts as flow through entities at least in respect of income - notwithstanding the need at times for family trust elections to ensure that franking credits can ‘flow through’
Non-residents and Capital Gains from Non-Taxable Australian Property
Non-residents are only taxed on income from Australian sources. When it comes to capital gains, non-residents are only taxed on capital gains arising on CGT assets which are Taxable Australian Property.
If you apply the flow through principle, since non-residents are not assessed for capital gains unless those capital gains are from Australian Taxable Property, it might be thought that a non-resident beneficiary would not have to pay CGT on trust distributions where those capital gains are not from taxable Australian property.