Many Asian families hold wealth through trusts in Singapore, Hong Kong or offshore centres, and through holding companies outside Australia. When a family member becomes an Australian tax resident, several Australian regimes can reach into those structures. They are designed to stop Australian residents deferring or avoiding tax by holding wealth offshore, and they apply regardless of where the structure was established.
Distributions from foreign trusts
When an Australian resident beneficiary receives an amount from a foreign trust, section 99B of the Income Tax Assessment Act 1936 can include it in their assessable income to the extent it represents income or gains that would have been taxed had the trust been an Australian resident. Amounts that represent original capital contributed to the trust, or income that has already been taxed in Australia, are generally excluded.
Where accumulated income from earlier years is distributed, an interest charge may also apply, intended to remove the benefit of deferral. The result is that distributions of long-accumulated income can be considerably more expensive than families expect. Accurate records of the trust’s capital, income and gains, year by year, are essential.
Transferor trust rules
Separately, the transferor trust rules can attribute a foreign trust’s income to an Australian resident who transferred property or services to it, even if nothing is distributed. Whether they apply can depend on when the transfer occurred and whether the transferor was an Australian resident at the time, with particular rules for transfers made before a person first became a resident. These rules are complex and the timing of any transfer matters.
Controlled foreign companies
Australia’s controlled foreign company (CFC) rules can attribute certain income of a foreign company to Australian resident shareholders who, alone or with associates, control it, even where no dividend is paid. The rules focus on passive or “tainted” income, such as interest, dividends and some rents and royalties, and contain an active income exemption for genuine trading businesses. Countries are classified differently, and the outcome can differ for a company resident in a comparable-tax country compared with one in a low-tax jurisdiction.
Foreign tax paid elsewhere
Where foreign tax has been paid on income that is also taxed in Australia, a foreign income tax offset may be available, subject to limits. Australia’s treaties with China, Singapore and other countries may reduce withholding taxes and allocate taxing rights. The interaction is technical, particularly where another country taxes the same income on a different basis or at a different time, as China’s 2026 offshore trust rules may do. See China’s new offshore trust tax rules.
Transparency
Information about offshore accounts and structures is exchanged under the Common Reporting Standard, and the ATO uses this data. Structures should be designed and reported on the basis that they are fully visible to tax authorities in each country.
Legal design matters
Tax outcomes often depend on legal facts: who settled the trust and when, who can benefit, whether distributions are of capital or income, who controls a company, and how the trust deed defines income. Lawyers and tax advisers should work from the same documents. See who controls a family trust and offshore trusts with Australian beneficiaries.
How we assist
We review and draft trust deeds and constitutions for families with Australian residents, advise trustees on their powers and record-keeping, and coordinate with the family’s tax advisers in Australia and overseas. This article is general information only; tax outcomes depend on individual circumstances and should be confirmed with a qualified tax adviser. Justin Chua is a Nationally Accredited Mediator and an Affiliate member of STEP, the worldwide professional body for trust and estate practitioners.
Frequently asked questions
Are distributions from a Singapore or Hong Kong trust taxed in Australia?
They can be. Under section 99B, amounts received by Australian resident beneficiaries from a foreign trust may be assessable to the extent they represent income or gains, and an interest charge may apply to accumulated income from earlier years.
What are the transferor trust rules?
They can attribute a foreign trust’s income to an Australian resident who transferred property or services to the trust, even if nothing is distributed. Timing and the transferor’s residency at the time of transfer are important.
What is a controlled foreign company?
A foreign company controlled by Australian residents. Certain passive income of the company may be attributed to its Australian resident shareholders each year, even if no dividend is paid, subject to exemptions for active business income.
Can tax paid in China or Singapore reduce Australian tax?
A foreign income tax offset may be available for foreign tax paid on income that is also taxed in Australia, subject to limits. Tax treaties may also reduce foreign withholding tax.
Chua Tan Associates advises families, executors, trustees and their professional advisers on 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. Victorian law unless stated otherwise.
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