Where’s it at?** Capital gains tax and non-resident beneficiaries

Following recent posts it is worth remembering that historically, non-resident individuals could access the 50% capital gains tax (CGT) discount on capital gains on the disposal of Australian real property or shares in land rich entities, provided that there was an ownership period of more than 12 months. 

However, for any capital gains made after 8 May 2012 by a non-resident disposing of a taxable Australian asset, regardless if the asset was owned by the individual or via a trust, there is no access to the 50% CGT discount. 

The 50% CGT discount is still available for any capital gains accrued, but not crystallised prior to 8 May 2012, although an independent valuation is likely to be required. 

Trustees of trusts with non-resident beneficiaries will need to be particularly mindful of issues such as the following: 

1. having a mixture of capital gains on taxable and non–taxable property when distributing to a non-resident;
2. if a beneficiary becomes a non–resident after 8 May 2012 and the relevant asset disposed of was acquired prior to that date; and
3. ensuring the benefit of accessing the 50% CGT discount on accrued gains as at 8 May 2012 by obtaining a valuation.

** for the trainspotters, the title today is riffed from the Beck song ‘Where’s it at’. View hear (sic): 

Trust distributions to non-resident (leaders)** or beneficiaries (as the case may be)

Generally, withholding tax is payable on all dividends, interest or royalties included in the income paid by a resident trust to a non-resident beneficiary to the extent that the non-resident beneficiary is presently entitled to the relevant amount. 

For example, if a resident trust validly distributes income to beneficiaries in the United States (who are non-resident beneficiaries), then: 

1. under the withholding tax system, a flat rate of tax is deducted from the source of the income before the income is sent overseas;
2. each part of the income (depending on whether it is interest, dividends or royalty distribution) will be taxed on the relevant withholding tax rate generally, ranging between 10% and 15%; and
3. often the beneficiary will not be subject to any other tax.

Importantly, however, any trust distributions to non-residents where the withholding tax rules do not apply, the trustee will be taxed at the top marginal rate. 

** for the trainspotters, the title today is riffed from the Green Day song ‘St Jimmy’. View hear (sic):