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The ATO is keeping a close eye on distributions from foreign trusts, reminding tax professionals to ensure clients understand their tax obligations.
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ATO circles distributions from foreign trusts
06 December 2021
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Over the weekend the ATO issued a statement, notifying tax professionals that it is currently monitoring distributions from foreign trusts.
Any amount (or value of an asset) received by an Australian beneficiary from a foreign trust, either directly or indirectly, may need to be included as assessable income in the income year that it is received, the ATO said.
“If your clients receive money (or assets) from overseas, it’s important they understand their tax obligations,” the ATO explained.
“There are a number of payments made from overseas that may need to be included in your client’s assessable income, such as distributions from foreign trusts.
“Your client might not identify the amount (or asset) they’ve received as a trust distribution but see it as a gift or loan from a family member.”
The ATO said tax professionals can help clients recognise whether these amounts should be included in their tax return by ensuring they identify three key factors.
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Firstly, who paid the money or transferred the asset.
“For example, is the amount (or asset) from a foreign trust directly or has it been received indirectly from a foreign trust through another entity or person,” the ATO said.
Secondly, whether they are a beneficiary of the foreign trust; and thirdly, what the money represents.
“For example, is it payment for services, a gift, a distribution or a loan,” the ATO said.
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