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
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