Section 99B of the Income Tax Assessment Act 1936 is far-reaching and specifically targets Australian residents receiving amounts from foreign trusts.

The ATO has ramped up scrutiny, meaning if you are an Australian tax resident and a beneficiary of a foreign trust, it’s critical to understand how these rules affect you.

When does Section 99B apply?

Section 99B has a broad scope and is designed to catch previously untaxed amounts.

If you are an Australian resident and receive any amount from a foreign trust, those amounts are typically included in your assessable income. ‘Amounts’ are defined broadly and could include distributions, loans, gifts or use of property.

When do Section 99B exceptions apply?

There are limited key exceptions under s99B(2) which are narrowly applied, including:

  • Corpus of the trust: amounts representing trust capital may be excluded.
  • Non-taxable income: income that would not have been taxed if derived by an Australian resident may also be excluded.

New ATO draft guidance

The ATO has recently released draft guidance which provide insight into how Section 99B applies:

  • Draft Taxation Determination TD 2024/D2 considers factors taken into account in determining whether the exceptions in s99B(2) apply.
  • Draft Practical Compliance Guideline PCG 2024/D1 outlines the ATO’s compliance approach including consideration of deceased estates.

Are you affected? Use this checklist:

  • Are you an Australian tax resident?
  • Have you received distributions or other amounts from a foreign trust?
  • Do you meet any of the exceptions under s99B(2) (e.g., corpus exception, income previously taxed)?

If you answered “yes” to any of these, you may be subject to tax under s99B, and careful evaluation is required.

In summary, Section 99B is broad, capturing most foreign trust distributions to Australian residents. Accurate documentation is essential, particularly for the corpus exclusion, and deceased estates can also qualify as foreign trusts. Given increased ATO scrutiny, Australian beneficiaries should act now to ensure compliance and avoid penalties.

Article authored by Brink van Wyk, tax advisory manager at HLB Mann Judd Perth. Brink can be contacted at bvanwyk@hlbwa.com.au

This article first appeared in the Summer 2024/25 issue of HLB Mann Judd Perth’s Client Alert.