Foreign Trust Payments: Potential Tax Liabilities for Beneficiaries
Understanding When Foreign Trust Distributions Must Be Included in Assessable Income
Additional tax liabilities may arise when money or assets of a foreign trust are paid to a taxpayer or applied for their benefit, and they are a beneficiary of the foreign trust. These can include:
- loans to them by the trustee directly or indirectly through another entity;
- amounts paid by the trustee to a third party on their behalf;
- amounts that are described as gifts from family members, but are sourced from the trust; and
- distributions paid to them or trust assets (such as shares) transferred to them by the trustee.
Taxpayers who receive money from a foreign trust may need to ask further questions to determine whether the amount must be included in their assessable income, including:
- whether they are a beneficiary of the foreign trust;
- where the foreign trust obtained the money; and
- why the money was paid to them, e.g., is it a payment for services, a gift, a distribution or a loan.
