Inheriting from overseas?
Australia does not have a general inheritance tax. But an overseas inheritance can still be taxed if the money or property comes to you through a foreign trust, a family trust, or a non-resident deceased estate. The rule that usually causes the problem is section 99B of the Income Tax Assessment Act 1936. For an Australian resident, it can turn a foreign trust distribution into assessable income, taxed at your marginal rate, with none of the concessions you would expect. Here is what it does, when it applies, and how to keep the bill down.
This article focuses on foreign trusts and non-resident deceased estates. Different rules can apply where assets pass directly from an individual’s estate, where a testamentary trust is created, or where a trust has changed its residency.
Key Takeaways
- Section 99B can tax a distribution from a foreign trust or non-resident deceased estate as your assessable income, and the usual capital gains concessions may not be available.
- You only need to be an Australian resident for part of the income year for a distribution to be caught.
- The trust's original capital is usually excluded, but accumulated income and growth can be taxed, whatever the payment is called.
- The burden is on you to prove an amount is not taxable, so records matter, and they are easiest to gather before the money moves.
The trap that costs the most
Picture a common situation. Elderly parents in New Zealand put the family home into a New Zealand trust many years ago. The home was worth a little then. The parents have now passed away, and under the trust their only child becomes entitled to the property, now worth far more. The child lives in Australia and is an Australian resident.
Depending on the trust’s records and the section 99B exclusions, some or all of the value distributed to the Australian resident child can be assessable in Australia. The amount is not worked out by simply treating the growth as a capital gain; it depends on what the distribution represents and what can be excluded. And because section 99B is an assessable-income inclusion rather than a normal capital gain in the child’s hands, the concessions clients expect may not be available — there may be no main residence exemption, no 50% capital gains discount, and no capital losses to reduce the amount.
Here is the part that stings. Had the parents owned the home in their own names and left it directly under their will, the Australian tax outcome on receipt could have been very different. The child may not have been assessed in Australia on the historic growth merely for inheriting the asset, although Australian tax could still arise later if the child sells it. The trust, set up with good intentions overseas, changed the result.
This pattern repeats across many countries, not just New Zealand, and it grows worse over time as the assets grow in value. If money or property is expected to move from an overseas trust or estate, get advice before the transfer is made. Once the distribution has occurred, the Australian tax position can depend on records that are difficult to reconstruct.
What section 99B actually does, in plain English
Section 99B sits in the Income Tax Assessment Act 1936. The idea is simple, even if the wording is not.
If an amount that is the property of a trust is paid to you, or used for your benefit, and you were an Australian resident at any time during that income year, the amount is included in your assessable income. That is the starting position.
The reason the rule exists is history. For many years, foreign income could be built up inside a trust and later paid out to an Australian beneficiary without Australian tax along the way. Section 99B was brought in to tax that accumulated, previously untaxed amount when it finally reaches a resident.
Two points often catch people out.
First, you only need to be a resident for part of the year. If you receive a distribution from your overseas trust and then move to Australia later in the same income year, the distribution can still be caught. Timing matters a great deal for people migrating to Australia.
Second, additional tax under section 102AAM may apply to certain accumulated trust income and gains. This can materially increase the Australian cost, so the exposure should be modelled before the distribution is made.
More than just a payout
Section 99B is wider than a simple cash payout.
An amount can be caught when it is applied for your benefit, not just paid to you. There are also deeming rules that treat amounts as applied for your benefit in less obvious cases: where value is reinvested or accumulated so that it will reach you later, where a benefit such as a loan is provided to you out of trust money, or where you can control how the money is used.
This is why arrangements that feel harmless deserve a careful look. A loan from a family trust overseas, the use of trust assets, or living in a property the trust owns can all raise the question. The ATO has shown particular interest in resident beneficiaries using trust property, including artwork, without paying a commercial amount for it.
Related traps to watch
Section 99B is not the only rule. If an Australian resident has transferred value to a foreign trust, the transferor trust rules can tax income before any distribution is made. And if an Australian resident is appointed as executor or trustee of an overseas estate or trust, the residency of that structure may need review. We cover both in our guide on what to do if the ATO questions your overseas inheritance.
The good news: what is not taxed
Section 99B does not tax everything. The key reductions sit in the second part of the rule, and the most important one is for corpus — broadly, the original capital of the trust.
The test the ATO applies is a useful way to think about it. Ask: if the foreign trust had been an Australian resident, would this amount have been included in its assessable income? If the answer is no, the amount is generally excluded from your section 99B income. In applying that test, the focus is not the label on the payment. You look at the circumstances that gave rise to the amount in the trustee’s hands and the source of the amount paid to you.
That produces some sensible outcomes:
- Money originally settled on the trust, or gifted to it, is usually identifiable corpus and can be excluded.
- Proceeds from genuine pre-CGT assets (acquired before 20 September 1985) are generally not assessable, because they would not have been taxed in a resident's hands either.
- Where property is received because of a death, the value at the date of death is often the key figure: it helps identify the amount that should not be exposed under section 99B, while later income or growth may need separate analysis. A contemporaneous valuation is essential.
The catch is that you have to trace what the distribution actually represents. A trustee resolution describing a payment as capital is not enough if the underlying amount is really accumulated income, reinvested income, or gains that would have been taxable to a hypothetical Australian resident. The character of the underlying amount, and the order in which assets are sold and paid out, can change the result. We explain this with worked examples in our guide on how much of an overseas inheritance is taxed.
ATO low-risk compliance approaches
The ATO has identified some situations it treats as low risk for section 99B compliance. These are not statutory exemptions, and they do not replace advice or a private ruling. They indicate when the ATO is less likely to commit compliance resources to an arrangement.
The first low-risk category covers certain non-resident deceased estates. Broadly, the deceased must have been a non-resident at death, the trust property (including cash or sale proceeds) must be distributed to the Australian resident beneficiary within 24 months of the date of death, and the total value received by that beneficiary must not exceed A$2 million at the time it is paid or applied.
The second covers the use, hire or borrowing of trust property on commercial terms. There should be an agreement, the terms should be market-based and supportable by evidence, and the beneficiary should actually pay the trustee the relevant interest, rent, hire or use amount.
Two cautions. A compliance guideline is not the law, and it can change. And falling outside these categories does not mean section 99B applies — it means the ATO may look more closely. If the distribution is high value, unusual, undocumented, or involves a loan or an in-specie asset transfer, a private ruling may be the safer path.
When the ATO reviews one of these distributions, the onus is on you, the beneficiary, to show that a reduction applies. If you cannot, the ATO can tax the whole amount.
That makes records everything. The kinds of documents that help include the trust deed or the will, signed trustee resolutions or distribution statements, the trust’s financial accounts, evidence of what was originally settled on the trust, and a record or valuation of the assets at the date of death.
You do not need a perfect set of papers. The courts have made clear that a taxpayer can discharge the onus with the evidence reasonably available, including the recollections of people who were there at the time, supported by what records exist. But the practical reality is harsh: the documents only get harder to find as the years pass, advisers retire, and memories fade. Our guide on what to do if the ATO questions your overseas inheritance covers the records that satisfy the ATO, the low-risk approaches, and the wider rules that can tax you even without a distribution.
A short checklist before money moves
- Are you an Australian resident, or about to become one, in the year the distribution will be received?
- Is the payment coming from a foreign trust, a non-resident deceased estate, or a structure that holds family assets overseas?
- Can you identify what the distribution represents — original capital, a pre-CGT asset, post-death value, or accumulated income?
- Do you hold the trust deed or will, the accounts, and proof of what was originally put into the trust?
- Is any part of the arrangement a loan, or the use of trust property, rather than a straight payment?
- Could the timing of the payment be moved to fall before you become a resident?
Frequently asked questions
Australia has no general inheritance or estate tax. But if the money or property comes to you through a foreign trust or a non-resident deceased estate, section 99B can include some or all of it in your assessable income. Whether it is taxed, and how much, depends on what the amount represents.
If your parents pay you a genuine gift from their own funds, that will often not be assessable in Australia merely because it is a gift. The risk changes if the money came from a trust, represents your own foreign income or gains, is really a loan, or is part of an arrangement that disguises assessable income. The source of the money and the evidence supporting it matter.
A distribution from a foreign family trust to an Australian resident is the classic section 99B situation. The trust’s original capital is generally excluded, but accumulated income and growth can be taxed. Calling the payment capital does not settle the question.
It can apply for the income year in which you become a resident. You only need to be an Australian resident at some point during that year for a distribution made earlier in the same year to be caught. Timing a distribution relative to your residency is important and is best planned in advance.
At a minimum, the trust deed or the will, signed resolutions or distribution statements, and the trust’s accounts. For an inheritance, a date-of-death valuation and evidence of what was originally settled on the trust are often needed. Gather these early, because they are hard to reconstruct later.
Sometimes. A foreign income tax offset may be available, but it is not automatic. You need to identify the foreign tax, the income or gain it relates to, who paid it, and whether it is creditable against the Australian tax on the same amount. The offset is capped and will not produce a refund. Records of foreign tax paid are essential.
It can be treated as a benefit applied for your benefit, which raises section 99B. The ATO treats use on genuine commercial terms, with the commercial amount actually paid and supportable by market evidence, as low risk. Informal or below-market use is where the risk sits.
Talk to Westcourt before the distribution is made
The most expensive mistakes here happen after the money has already moved. Once a distribution is paid to an Australian resident, the options narrow quickly.
If you have family overseas, expect to inherit from another country, or hold an interest in a foreign trust or non-resident deceased estate, the time to act is now — while the structure can still be reviewed and the records can still be gathered. Westcourt can work through the section 99B position with you and, where needed, with your overseas adviser, so the result is planned rather than discovered in an ATO review.
Speak with Westcourt before any foreign distribution is made, not after.
General information only; not personal tax advice. Current ATO guidance: TD 2024/9 and PCG 2024/3. Last updated June 2026.
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