Many family trusts in Australia were set up when the whole family lived here. Years later, a daughter works in Singapore, a son has gone back to Shanghai, and a parent spends most of the year in Kuala Lumpur. The trust still holds the family business, the investment property or a share portfolio, and the accountant asks a question nobody planned for: what happens when a beneficiary, or the person running the trust, is no longer an Australian resident?
This article explains the general rules for a trust distribution to a non-resident beneficiary, and what changes when the trustee or controller moves overseas.
When is a family trust an Australian resident trust?
For income tax, a trust is generally a resident trust for an income year if either:
- a trustee was an Australian resident at any time during the year; or
- the central management and control of the trust was in Australia at any time during the year.
Central management and control means where the high-level decisions are really made, not routine bookkeeping. Similar tests apply for CGT purposes, with a separate test for unit trusts.
Most family trusts have a company as trustee. A company incorporated in Australia is an Australian resident, so a trust with an Australian trustee company will usually remain a resident trust even if some family members live overseas. The risk is greater where individuals are the trustees, or where all the real decision-making has moved offshore.
What happens when the trustee or controller moves overseas
When an individual trustee leaves Australia and becomes a non-resident, and no other trustee is a resident, the trust can stop being a resident trust if its central management and control is also no longer in Australia. A trust ceasing to be a resident trust for CGT purposes can trigger a capital gains tax event on its assets, broadly as if they had been disposed of at market value, other than taxable Australian property such as Australian land.
A related problem is the chain of control. Even if the trustee company stays in Australia, the appointor (the person who can remove and appoint the trustee) and the directors of the trustee company may now be overseas. It is worth asking:
- Where are board decisions actually made, and who signs the distribution resolutions?
- Does the company still have at least one director who ordinarily resides in Australia, as the Corporations Act requires for a proprietary company?
- Does the trust deed or a state tax law treat the trust as “foreign” because of who controls it or who can benefit? That can affect state land tax and duty surcharges, which apply separately from income tax.
How distributions to non-resident beneficiaries are taxed
In a resident trust, an Australian-resident adult beneficiary who is presently entitled to trust income normally includes their share in their own tax return. The position is different when the beneficiary is a non-resident at the end of the income year.
The trustee is assessed on the non-resident’s share
Broadly, the trustee is taxed on the non-resident beneficiary’s share of the trust’s net income, to the extent it relates to Australian-source income. This is not a final tax. The beneficiary may lodge an Australian tax return, include that share, and claim a credit for the tax the trustee has already paid. The trustee needs to hold back enough cash to pay it.
Withholding on interest, dividends and royalties
Certain types of income, such as unfranked dividends, interest and royalties, are dealt with under the non-resident withholding rules instead. Where withholding applies, the trustee withholds and remits the tax, and that income is generally not taxed again to the trustee or the beneficiary. Franking credits attached to dividends are treated differently for non-residents: they are not refundable to the non-resident beneficiary.
Capital gains
Capital gains made by a resident trust and distributed to a non-resident beneficiary are a common area of confusion. Many families assume that, because a foreign resident is generally only taxed on gains from taxable Australian property (mainly Australian real property and certain interests in land-rich entities), a gain on shares or other non-taxable Australian property passing through the trust is tax-free. The Federal Court has held that this is not necessarily so for a resident discretionary trust: the special trust capital gains rules can still tax the gain, even where the underlying asset is not taxable Australian property. In addition, the CGT discount is not available on the trustee’s assessment for a non-resident beneficiary.
From 1 July 2027, the 50% CGT discount is replaced by indexation and a 30% minimum tax for gains accruing after that date, under legislation passed in June 2026. Foreign residents are not entitled to the new indexation. How gains flowing through a trust to a non-resident are calculated after that date is something to model with your adviser.
How tax treaties may interact
Australia has tax treaties with many countries in Asia, though not with every place where our clients’ families live. A treaty can limit the rate of withholding on dividends, interest and royalties, and decide which country has the first right to tax certain income. Treaties generally leave Australia free to tax income and gains from Australian land.
The beneficiary’s home country may treat the distribution differently from Australia, as income, capital or a gift, and whether a foreign tax credit is available depends on its law. Check both sides before distributing.
Practical checklist for a family trust with beneficiaries overseas
- Confirm residency each year. Record where each beneficiary, trustee, director and appointor lives at 30 June.
- Follow the chain of control. Trace who controls the trustee company and who can replace the trustee, and make sure at least one director ordinarily resides in Australia.
- Keep cash for tax. Where the trustee is assessed on a non-resident’s share, plan for the tax before paying out.
- Review the trust deed. Check powers to change trustee, whether foreign persons are excluded for state tax reasons, and what happens if the appointor moves overseas or dies.
- Watch the 2028 proposal. A proposed 30% minimum tax on discretionary trusts from 1 July 2028 is before Parliament and is not yet law. Distribution planning for overseas beneficiaries may need to be revisited if it passes.
Frequently asked questions
Can a family trust distribute to a non-resident beneficiary in Australia?
Usually yes, if the trust deed allows it. The tax result changes: the trustee is generally assessed on the non-resident’s share of Australian-source income, and withholding applies to some types of income.
Does a non-resident beneficiary of a trust in Australia have to lodge a tax return?
Not always, but it is often worthwhile. The trustee’s tax on the beneficiary’s share is not a final tax, and lodging a return allows the beneficiary to claim a credit for the tax paid by the trustee. Advice from someone who understands both countries is recommended.
Does my family trust become foreign if I move overseas?
Not automatically. A trust is generally resident if a trustee is resident or its central management and control is in Australia at any time in the year. A trust with an Australian trustee company usually stays resident, but individual trustees who all move overseas can change the position.
Are capital gains distributed to non-resident beneficiaries tax-free?
Not necessarily. Courts have held that capital gains of a resident discretionary trust can still be taxed when distributed to a foreign resident, even where the asset is not Australian land. The discount is also not available on the trustee’s assessment for a non-resident beneficiary.
How Chua Tan Associates can help
When family members move overseas, the trust deed, the trustee company and the family’s Wills often stop matching how the family actually lives. Chua Tan Associates reviews trust deeds and the chain of control, from appointor to trustee company to directors, and prepares the changes of trustee, director appointments and deed variations that may be needed. Justin Chua trained in accounting and is an Accredited Family Business Advisor, and we work alongside the family’s accountant and with lawyers in other countries, advising in English, Mandarin and Cantonese. Because the tax rules here are complex and change often, we recommend that any distribution or restructure is decided with advice from a qualified tax adviser working together with your lawyer.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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