Section 99B – Benefits from Non-Resident Trusts
The ATO has updated its guidance on the functions of section 99B of the ITAA 1936. Section 99B ensures that payments made to a beneficiary who has been an Australian resident during the relevant income year are taxed unless a particular exception applies. While the legislation is not limited to non-resident trusts, the risk of section 99B applying is much higher if the trust has been a non-resident at some point since it was established.
Section 99B(2) minimises the amount determined under section 99B(1) to the extent that the distribution is sourced from the corpus of the trust unless this relates to gains or income made by the trust that hasn’t been taxed in Australia but would have been taxed if it had been derived by the resident of Australia.
In TD 2024/9, the ATO discusses the aspect of hypothetical resident taxpayers and provides practical examples to explain how these rules would apply in some common scenarios. Under the hypothetical resident taxpayer tests, the only characteristic of this hypothetical taxpayer is that they are considered an Australian resident. As a result, the ATO confirms that the CGT (Capital Gains Tax) discount is not available to the hypothetical taxpayer.
PCG 2024/3 explains how the ATO approaches section 99B in different scenarios, although the guidance focuses on whether the taxpayer should pay attention to section 99B. The PCG explains that section 99B can apply in different circumstances, including situations involving loans, forgiven loans, received amounts from deceased estates, and when beneficiaries use assets owned by a trust.
However, the PCG sets out the compliance approach of the ATO for two common scenarios which are low risk and record-keeping expected to confirm it.
For deceased estates, the arrangement will be low risk if:
- The deceased individual was not a resident just before they died.
- The trust property is distributed to the resident beneficiary within 24 months of the date of the death.
- The total trust property value the beneficiary receives doesn’t exceed $2m.
- The beneficiary receives documentation to prove that the requirements are met.
- The arrangement was not entered into to allow the beneficiary to offer a benefit to another resident beneficiary of the trust.
For the second scenario, the arrangement will be low risk if:
- The borrowing, hiring, or use of the trust property is governed by an agreement, whether written or verbal.
- The agreement is established on commercial terms.
- A physical payment is made by the resident beneficiary to the trustee equal to the interest, hire or use according to the commercial terms.
An agreement is on commercial terms and conditions where the rate applied and agreement terms are consistent with market rates in the same circumstances. There is also a safe harbour for loans if the interest rate and term match Division 7A loans. If the arrangement meets the conditions to be considered low risk, the ATO will not allocate compliance resources to consider the application of section 99B.
Value of goods taken from stock for private use
TD 2024/8 updates the amounts that will be accepted by the ATO as estimates of the value of goods received from trading stock for private use by taxpayers in some industries for the 2024-25 income year. The industries covered are:
- Bakery
- Butcher
- Restaurant or café (licensed)
- Restaurant or café (unlicensed)
- Caterer
- Delicatessen
- Fruiterer or greengrocer
- Takeaway food shop
- Mixed business
Meaning of ‘ATM’ for GST financial supplies
Addendums to GSTR 2014/2 and GSTR 2002/2 have been issued by the ATO to reflect the meaning of ATM and ATM services.
NALI amendment draft updates
The draft updates have been issued by the ATO to current rulings which reflect amendments to the non-arm’s length income rules in section 295-550 of the ITAA 1997. LCR 2021/2DC makes it clear how the amendments in section 295-550 work in a scheme where the parties don’t deal with each other at arm’s length and the trustee of a small complying superannuation fund incurs non-arm’s length expenditure in gaining or producing ordinary or statutory income.
TR 2010/1DC2 covers the ATO’s perspective on the ordinary meaning of the word ‘contribution’ relating to an approved deposit fund, super fund or retirement savings account in the ITAA 1997.