Australian Resident Trust and Foreign Property

What happens where an Australian resident discretionary trust owns a residential property in the UK it is looking to sell ? What are some of the things to look out for ?

When an Australian resident discretionary trust sells assets that are not classified as TAP and realises a capital gain, then that is included in the trust’s taxable income calculation.

Recent draft TDs issued by the ATO (TD 2019/D6 and TD 2019/D7) and a recent case dealing with this area (the Greensill case) suggest that if a resident discretionary trust makes a capital gain then this would normally be taxable in Australia regardless of whether the gain is distributed to a non-resident beneficiary and regardless of whether it relates to an asset that is classified as taxable Australian property (TAP) or not or has a foreign source etc. The outcome can be different in situations where the trust is a fixed trust or where the trust is not a resident of Australia for tax purposes.

As a non-resident taxpayer cannot generally access the CGT discount or the tax-free threshold, that would impact the amount of tax that the trustee would be assessed on in relation to the capital gain distributed to the non resident beneficiary.

 

Yes the resident trust taxation issue generaly prevails over TAP since the trust interest in the property provides a indirect TAP interest. Hence dual taxation is a relevant concern and credit may need to be given for some (or all) of the foreign tax paid as final tax (not as a withholding tax). The foreign tax issues should be lodged and determined prior to the Australian tax. Often 50% of the foreign tax may only be creditable. Family trust elections can also affect access to the tax credit.

A matter for a trust and property tax savvy adviser