ATO confirms foreign beneficiaries subject to CGT on discretionary trust gains

On 31 August 2022, the Australian Taxation Office (ATO) finalised its Taxation Determinations TD 2022/12 and TD 2022/13 that Australian Capital Gains Tax (CGT) will apply in respect of net capital gain distributions (wherever sourced) by Australian discretionary trustees to foreign beneficiaries.

These Tax Determinations broadly reflect the Full Federal Court decision in Peter Greensill Family Co Pty Ltd (Trustee) v Commissioner of Taxation [2021] FCAFC 99.

CGT will apply even though the underlying gains would not have otherwise been subject to Australian CGT if derived either directly or via a fixed Australian trust by foreign residents.

The Determinations will apply retrospectively. There may be some exceptions such as where taxpayers have reached a settlement with the ATO prior to the determination being issued. The ATO will not devote resources examining arrangements under TD 2022/12 (regarding foreign sourced gains) prior to the 2019 income year.

However, should the ATO become aware of an arrangement contrary to TD 2022/12, the Commissioner will apply the law consistently with that tax determination. Also, the ATO has not specifically included this enforcement concession in respect of TD 2022/13 (regarding Australian sourced gains).

In light of these developments, trustees of Australian discretionary trusts must carefully consider the CGT implications to them and their foreign beneficiaries prior to realising trust assets for capital gains, so that appropriate amounts of CGT may be deducted from trust distributions to non-residents and follow up Australian tax return compliance may be undertaken by foreign beneficiaries where appropriate.

Please contact your Grant Thornton representative if you wish to discuss these measures further.