For many Asian families, the path to Australia begins with a child. A son or daughter comes to study, finds work, meets a partner and stays. Parents may follow years later. Meanwhile, the family’s wealth is often held offshore — in a trust in Singapore, Hong Kong, Taiwan or elsewhere, in a family company, or in the parents’ own names.
Once that child becomes an Australian tax resident, the way the family supports them, and the way the family trust is run, can have Australian tax consequences. The good news is that the most important planning can usually be done in advance, if the family starts early.
When does a child become a tax resident?
Tax residency is not the same as visa status. A student living in Australia for an extended period may already be an Australian tax resident under the residency tests, even on a temporary visa. Temporary visa holders may receive different treatment of some foreign income for a period, but this generally ends once permanent residency is granted, and whether it helps in a particular case needs advice. Families should not assume a child is “not resident yet” simply because they do not hold permanent residency.
Distributions from offshore trusts
We explain the foreign trust distribution rules in a separate article, so in brief: under section 99B of the Income Tax Assessment Act 1936, amounts paid to or applied for the benefit of an Australian-resident beneficiary from a foreign trust may be assessable, except to the extent they represent certain corpus (capital) or amounts that would not have been taxable if derived by an Australian resident. Where a distribution comes from income accumulated in earlier years, an interest-style charge may also apply.
The practical lesson is that the source of every distribution matters — original capital, current-year income, accumulated income or capital gains — and the trustee needs records to prove it.
Where is the trust itself resident?
A trust may become an Australian resident trust if its trustee is resident or if its central management and control is in Australia. If an adult child in Melbourne starts making the real decisions for the trust — even informally, through a family chat group — this may affect the trust’s residency and bring the whole trust into the Australian tax net. A child should not take on trustee, director or protector roles, or start directing the trust in practice, without advice.
Gifts, distributions and loans are different things
Families often move money to children without thinking about how it is characterised. In general terms:
- a genuine gift from a non-resident parent’s own funds is generally not income in the child’s hands, and Australia has no gift tax;
- a trust distribution is treated under the trust rules, even if the family calls it a “gift” — money that is really a distribution from a trust, or the income of a family company, must be characterised correctly; and
- a loan should be documented as a loan, with terms that reflect what the family actually intends.
Keep source documents — bank records showing where the money came from, whose account it left and why. Unexplained transfers from overseas can attract questions from banks and the ATO.
Treaties, dual residency and the income-capital mix
A child may be resident in two countries at once. Tax treaties may help decide which country has taxing rights, but not every country has a treaty with Australia, and treaties do not always resolve trust distribution issues. The mix of income and capital inside the trust also matters, because the Australian tax outcome may differ for each.
CRS reporting
Offshore trusts and the banks that hold their accounts often report beneficiaries and distributions under the Common Reporting Standard. Once a child is recorded as an Australian resident, information about distributions to them may be exchanged with the ATO.
Pre-residency checklist
- Map every structure: trusts, companies, policies, bank and investment accounts, and who controls each.
- Review the trust deed: the beneficiary class, the trustee’s powers, the power to add or remove beneficiaries, and who can appoint trustees.
- Separate capital from accumulated income, ideally in different accounts, and keep records of the original settled sums.
- Consider, with tax advice, whether distributions or a clean-up of accumulated income should happen before the child becomes resident, where appropriate.
- Prepare or update letters of wishes so future trustees understand the family’s intentions.
- Align the parents’ wills in each country with the trust and with the child’s new residency.
- Consider the position if the parents later migrate too, as separate rules may then apply to trusts they have funded.
Work with your tax adviser — properly
Trustees should give tax advisers the full picture: the deed, the accounts, the history of contributions and distributions, and the family’s plans. Advice is only as good as the information behind it. Trustees also cannot simply “hand-ball” the decision to an adviser — they must consider the advice and make, and record, their own decisions.
Composite hypothetical: a Taiwanese family
This is an anonymised composite example, not a real family. A Taipei couple hold investments through a discretionary trust with an offshore corporate trustee. Their two children came to Melbourne for university; one now works in Australia and expects permanent residency, the other plans to return to Taiwan. For years the trust has paid the Melbourne child’s rent and living costs directly from a mixed account, and the child is in a family group chat where investment decisions are discussed.
Before the child’s permanent residency is granted, the family maps the trust’s capital and accumulated income, opens separate accounts, and obtains tax advice on whether to make certain distributions now. The child steps back from trust decision-making. Future support is structured as documented gifts from the parents’ own funds. The parents update their Taiwan and Australian wills, and the trustee receives a letter of wishes.
Frequently asked questions
My child is only on a student visa. Do we need to worry yet?
Possibly. A student living in Australia for a long period may already be a tax resident, even on a temporary visa. The time to plan is before residency is clear, not after.
Can I just give my child money instead of using the trust?
A genuine gift from your own funds is generally not income for your child. But if the money really comes from the trust or a family company, it must be treated as such. Keep records showing where the money came from.
Should my child become a trustee or director of the family trust?
Not without advice. If key decisions are made in Australia, the trust itself may become an Australian resident trust, with broad tax consequences. Get advice from a registered tax agent or tax adviser and a lawyer first.
How Chua Tan Associates can help
Chua Tan Associates advises families, trustees and beneficiaries across Australia on trust deeds, trustee governance, wills and the legal side of cross-border succession. We work alongside your registered tax agent or tax adviser and with local lawyers overseas, so that the family’s plan works in every country involved. We advise in English, Mandarin and Cantonese.
Related reading
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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