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The ATO has finalised Taxation Determinations TD 2017/23 and TD 2017/24: 

  • TD 2017/23 Income tax: does the residency assumption in subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936) apply for the purpose of section 855-10 of the Income Tax Assessment Act 1997 (ITAA 1997), which disregards certain capital gains of a trust which is a foreign trust for CGT purposes? 
  • TD 2017/24 Income tax: where an amount included in a beneficiary's assessable income under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936) had its origins in a capital gain from non-taxable Australian property of a foreign trust, can the beneficiary offset capital losses or a carry-forward net capital loss ('capital loss offset') or access the CGT discount in relation to the amount? 

These relate to the tax treatment of capital gains made by a foreign trust from assets that are not taxable Australian property (TAP). These were first released as draft TD 2016/D4 and draft TD 2016/D5 in 2016. 

The tax determinations confirm: 

  • Only TAP capital gains are taken into account when working out the Australian capital gains tax (CGT) position of a foreign trust.
  • Amounts attributable to non-TAP capital gains from the trust will be assessable upon distribution to an Australian resident beneficiary. However, the amounts will not be treated as capital gains of the Australian beneficiary and accordingly can't be reduced by the CGT discount or by capital losses.
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