Capital Gains made by non-residents and the use of Australian Discretionary Trusts

Capital Gains Tax and Non-residents

The Federal Court recently ruled in the case of Peter Greensill Family Co Pty Ltd (acting as a trustee) v FC of T that if an Australian resident family trust distributes capital gains from the sale of shares that do not qualify as “taxable Australian property” to a non-resident beneficiary, the non-resident individual must report and pay taxes on those gains. The Federal Court also held the capital gains tax and non-residents could not be disregarded under section 855-10(1) of the Income Tax Assessment Act 1997.

Mr Greensill was subject to a capital gain of almost $60 million from the distribution of a capital gain from his Australian resident discretionary trust from the disposal of shares that were not ‘taxable Australian property’.

The decision is controversial and has confirmed the ATO’s view in Draft Taxation Determination TD 2019/D6. The decision stems from a strict interpretation of the legislation and seems to deviate from the policy’s original intent, as a non-resident beneficiary would not have to pay Australian tax if they held the shares directly or through a fixed trust or company.

Greensill’s decision bolsters the ATO’s stance in TD 2019/D6 with judicial authority, unless the case faces an appeal overturning it.

Therefore, it is important that Australian expats who are non-resident beneficiaries of an Australian family trust consider their position and undertake sufficient planning to ensure they are not subject to Australian CGT from assets held in their family trust.

Please do not hesitate to get in touch with us to discuss your circumstances further and we would be happy to assist you further.