The ATO has issued long awaited views about the operation of section 99B of the ITAA 1936:

• Draft Taxation Determination TD 2024/D2 discusses factors that are relevant to certain of the exceptions to section 99B.
• Draft Practical Compliance Guideline PCG 2024/1 outlines some common scenarios where trust beneficiaries will need to consider whether section 99B applies to a trust distribution. It also sets out the ATO’s compliance approach for certain scenarios that the Commissioner considers to be low risk.

The ATO website indicates that these documents are expected to be finalised this month (November 2024). When finalised, they are expected to apply both before and after their date of issue.

Section 99B was introduced in 1979 to assess Australian resident beneficiaries when they are paid an amount attributable to trust income that had been accumulated tax-free by a foreign trust. But it can apply more broadly including to distributions made by a deceased estate.

There are a number of exceptions to the application of section 99B. Importantly, an amount that represents trust corpus is exempt except to the extent that if it would have been assessable had it been derived by an Australian resident.

The meaning of the italicised words is the focus of TD 2024/D2. It explains that the only relevant characteristic of the hypothetical taxpayer is their status as an Australian resident. Other characteristics such as entity type cannot be considered. This means that the corpus exception does not apply to exempt the distribution of amounts attributable to the CGT discount.

The PCG provides that certain distributions (those made within 2 years of death and not exceeding $2m per beneficiary) by a non-resident LPR of a non-resident deceased individual will be considered to be lowrisk. This means that the ATO will not dedicate compliance resources to consider the application of the provision in the particular circumstances.

The compliance approach does not apply if the deceased was a resident. This means that estate practitioners will need to be alert to the application of the section where a resident deceased appointed a foreign resident LPR. In a private ruling issued to our client recently, the ATO ruled that section 99B operated to tax part of a legacy payable under a deceased’s Will. In that case estate funds representing bank deposits, shares sales and a death benefit had been intermingled, and the source of funds to used to pay the legacy was not clear. The ATO therefore ruled that a portion of the legacy (attributable to share gains) was taxable despite the fact that the amount from the bank accounts was more than enough to pay the legacy. The case highlights the importance of solicitors who