Section 99B Foreign Trust Distributions in Australia 2026: An Accountant's Guide to PCG 2024/3

For Australian tax residents who receive distributions from overseas trusts or inherit assets from non-resident deceased estates, Section 99B of the Income Tax Assessment Act 1936 can trigger unexpected and significant tax liabilities. This provision is one of the most complex and frequently misunderstood areas of Australian tax law, and the consequences of getting it wrong can be severe. Working with a qualified accountant who understands the ATO's updated compliance approach is essential for anyone with connections to foreign trusts.

Understanding Section 99B and Foreign Trust Distributions

Section 99B operates as a broad "catch-all" rule designed to bring foreign trust distributions into the Australian tax net. In simple terms, if a foreign trust pays an amount or applies property for the benefit of an Australian tax resident, that amount is generally included in the beneficiary's assessable income for that year.

The provision applies to a wide range of arrangements, not just straightforward cash distributions. It captures direct payments of income or capital, the use of trust-owned property (such as living in a trust-owned home or using artwork), interest-free or non-commercial loans sourced from a foreign trust, and gifts that can be traced back to a foreign trust structure.

Critically, Section 99B applies if the beneficiary is an Australian resident at any time during the income year in which the distribution or benefit is received. This catches many Australians who have recently returned from living abroad or who have recently migrated to Australia.

Key Exemptions and the Hypothetical Resident Test

Not all foreign trust distributions are taxable under Section 99B. Two primary exclusions exist under subsection 99B(2), but both require careful analysis and robust documentation.

The Corpus Exemption

Amounts representing the original capital settled on the trust — known as the "corpus" — are generally exempt from Section 99B. However, establishing what constitutes corpus requires tracing the trust's financial history, often across many years and multiple jurisdictions. The burden of proof rests entirely on the beneficiary to demonstrate that a distribution represents corpus rather than accumulated income.

The Non-Taxable Exemption

Amounts that would not have been assessable income if derived directly by an Australian resident are also exempt. To determine this, the ATO applies a "hypothetical resident taxpayer" test — asking whether the amount would be taxable if the trust were an Australian resident.

A critical and often surprising aspect of this test is that specific tax concessions — such as the 50% Capital Gains Tax (CGT) discount or small business CGT concessions — do not apply. The ATO's position is that these concessions are not universally available to all taxpayers, so they cannot be assumed in the hypothetical test. This means distributions that might appear to be "tax-free capital gains" can be fully assessable at the beneficiary's marginal tax rate.

ATO Compliance Approach: PCG 2024/3 and TD 2024/9

The ATO released two important guidance documents — Practical Compliance Guideline PCG 2024/3 and Tax Determination TD 2024/9 — that clarify its compliance approach to Section 99B arrangements. While these documents do not change the underlying law, they outline when the ATO is less likely to scrutinise an arrangement and identify "low-risk" scenarios that taxpayers can rely on.

Non-Resident Deceased Estates

Distributions from non-resident deceased estates are considered low-risk by the ATO if they occur within 24 months of the date of death and the total value does not exceed A$2 million. If both conditions are met, the ATO is unlikely to apply Section 99B to the distribution. However, beneficiaries must still maintain adequate documentation, including the will, date-of-death valuations, and trustee distribution statements.

Commercial Use of Trust Property

The use, hire, or borrowing of trust property is considered low-risk if it is governed by a formal written agreement, conducted on arm's-length commercial terms, and supported by market-rate payments. For monetary loans from a foreign trust, a safe harbour exists that allows taxpayers to align interest rates and repayment terms with the Division 7A benchmark interest rate requirements.

Arrangements Outside the Low-Risk Parameters

Arrangements that fall outside these low-risk parameters are not automatically non-compliant, but they will attract greater ATO scrutiny. In these cases, taxpayers must be prepared to provide comprehensive evidence demonstrating that the distribution is exempt under subsection 99B(2). An experienced accountant can help structure the analysis and documentation required to support this position.

Common Mistakes and Red Flags

Section 99B catches many Australians off guard, particularly those who assume that overseas inheritances or family trust distributions are automatically tax-free. The following are the most common mistakes that a qualified accountant can help you avoid.

• Assuming capital distributions are tax-free — Many beneficiaries incorrectly assume that distributions labelled as "capital" by a foreign trustee are exempt. Without proper tracing to original corpus, these distributions may be fully assessable.
• Failing to disclose foreign trust benefits — The ATO's data-matching capabilities have expanded significantly. Undisclosed foreign trust distributions can result in amended assessments, penalties, and interest charges going back multiple years.
• Inadequate record-keeping — The burden of proof lies with the beneficiary. Without the trust deed, historical financial accounts, trustee resolutions, and date-of-death valuations, it is extremely difficult to establish an exemption.
• Delaying professional advice — Documents become harder to obtain over time, particularly from overseas jurisdictions. Seeking advice before a distribution is made — or immediately upon migration to Australia — is far more effective than attempting to reconstruct records years later.
• Overlooking deemed benefits — Living in a trust-owned property, using trust assets, or receiving an interest-free loan from a foreign trust can all trigger Section 99B, even if no cash changes hands.

Australian Regulatory Context

Section 99B sits within a broader framework of Australian international tax rules designed to prevent the use of offshore structures to defer or avoid Australian tax. The ATO administers these rules with increasing sophistication, drawing on international data-sharing agreements under the Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) framework.

The ATO's International Dealings Schedule (IDS) requires taxpayers to disclose interests in foreign trusts, and failure to lodge or accurately complete the IDS can attract significant penalties. The Tax Practitioners Board (TPB) also requires registered tax agents and accountants to maintain competency in international tax matters, ensuring that professional advisers are equipped to navigate these complex rules.

For taxpayers who have not previously disclosed foreign trust interests or distributions, the ATO's Voluntary Disclosure Program provides a pathway to regularise their affairs with reduced penalties. An accountant experienced in international tax can assess whether voluntary disclosure is appropriate and manage the process on the taxpayer's behalf.

Documentation Checklist for Foreign Trust Distributions

If you are an Australian tax resident who has received or expects to receive a benefit from a foreign trust, the following documentation is essential. Your accountant will need all of these items to properly assess your Section 99B position.

• Trust deed and any amendments — The foundational document establishing the trust's terms and the trustee's powers
• Historical financial accounts — Showing the source and nature of trust funds, ideally from the date of settlement
• Trustee resolutions and distribution statements — Documenting the specific distribution and the trustee's characterisation of it
• Evidence of original corpus — Records showing what was initially settled on the trust and any subsequent capital contributions
• Date-of-death valuations — For distributions from non-resident deceased estates, independent valuations as at the date of death
• Loan agreements — For any loans from the trust, formal written agreements with commercial terms
• Foreign tax records — Evidence of any tax paid in the foreign jurisdiction on the distributed amounts

Questions to Ask Your Accountant

When engaging an accountant to advise on Section 99B matters, the following questions will help you assess their expertise and ensure you receive comprehensive advice.

• Are you familiar with PCG 2024/3 and TD 2024/9, and how do they apply to my specific situation?
• What documentation do I need to gather to support an exemption claim under subsection 99B(2)?
• Does the hypothetical resident test apply to my distribution, and how does it affect the CGT discount?
• Should I consider making a voluntary disclosure to the ATO for any prior-year distributions?
• Are there any other international tax provisions — such as the transferor trust rules or the foreign investment fund rules — that may also apply to my situation?
• What are the penalties if Section 99B applies and I have not previously disclosed the distribution?

How MyMoney® Can Help

Section 99B is a highly specialised area of Australian tax law that requires an accountant with genuine expertise in international tax matters. The stakes are high — an incorrect assessment can result in significant tax liabilities, penalties, and interest charges that could have been avoided with proper advice.

MyMoney® connects Australian individuals and businesses with qualified accountants who have demonstrated expertise in complex tax matters, including foreign trust distributions, international tax compliance, and ATO voluntary disclosure programs. Rather than searching for a specialist on your own, you can post a brief describing your situation and receive competing proposals from accountants who have the specific skills you need.

To get started, post a brief on MyMoney® and describe your foreign trust situation. You can also browse qualified accountants on our platform to find professionals with international tax expertise. Acting early — before distributions are made or before the ATO makes contact — gives you the best chance of managing your Section 99B obligations effectively.