How To Be Ready
This is the third guide in our series on the Australian tax on overseas inheritances. The first guide explains how section 99B taxes overseas inheritances, and the second covers how much is actually taxed. Here we deal with the review itself: who has to prove what, the records that win the argument, the ATO’s low-risk compliance approaches, and two further rules that can tax you even when no distribution is made.
Key Takeaways
- In a review, the burden is on you to prove an amount is not taxable; if you cannot, the whole amount can be taxed.
- A missing document is not fatal — the standard is the ordinary civil standard, and credible evidence can be enough.
- The ATO has low-risk compliance approaches for some deceased estates and for the use of trust property on commercial terms.
- You can be taxed even without a distribution, through the transferor trust rules, and a foreign estate can become an Australian resident simply because one executor is resident here.
The distribution has happened. Now prove it is not taxable
When the ATO looks at a payment from a foreign trust or non-resident deceased estate, the burden sits with you, the beneficiary. You must show that an exclusion applies. If you cannot, the ATO can treat the whole amount as assessable income.
That single point shapes everything. The trust is overseas, the events may be decades old, and the people who set it up may be gone. Yet it is the Australian beneficiary who has to produce the proof. The earlier you gather it, the stronger your position.
Satisfying the ATO
The ATO has set out the documents it expects to see. Treat the core set as the starting point:
- the signed trust deed, or the will of the deceased
- signed trustee resolutions or distribution statements showing the amount was paid or applied from the trust
- the trust’s financial accounts for the relevant years.
Beyond that, supporting records are assessed case by case, and can include evidence of what was settled on the trust, a date-of-death statement or valuation of the deceased’s assets, bank statements and payment records, accounting working papers, correspondence from the executors or their lawyers, and advice from overseas advisers. Anything not in English should come with a translation.
You do not need every document on the list
A practical point is often missed: the document list in a guideline is not itself the law.
The question is whether you have discharged your burden of proof to the ordinary civil standard — more likely than not
The courts have confirmed that a taxpayer does not have to produce every possible document or call every possible witness. Truthful evidence from the taxpayer, supported by the records that do exist and by the recollections of people who were involved at the time, can be enough. Corroboration is highly desirable.
In some cases, credible first-hand evidence supported by available records may be enough, but uncorroborated recollections are always more vulnerable in an ATO review.
So a missing document is not the end of the matter. A practical case can be built from the records you can find plus credible first-hand evidence of how the trust acquired its original capital. The aim is to weigh the scales in your favour, not to assemble a perfect file.
ATO low-risk compliance approaches
The ATO has identified some situations it treats as low risk for section 99B compliance, where it does not expect to commit compliance resources beyond confirming the low-risk features are present. These are not statutory exemptions and do not replace advice or a private ruling.
The first covers certain non-resident deceased estates. 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. A family understanding is not enough.
Two cautions. A compliance guideline is not the law and can change; and the ATO has in the past declined to confirm, by private ruling, that borrowing from a foreign trust on commercial terms is not a benefit, which sits uneasily with the guideline. Importantly, falling outside these categories does not mean section 99B applies — it means the ATO may engage to understand the arrangement. If a client plans to borrow from a foreign trust, the safer course is to obtain a private ruling before any money is advanced.
The wider net: you can be taxed without a distribution
Section 99B taxes amounts when they are paid out. But two other rules can apply earlier, or independently, and people miss them.
The transferor trust rules tax an Australian resident who has transferred value to a non-resident trust on an accruals basis — broadly, on the trust’s income as it arises, whether or not anything is distributed. This is aimed at residents who put assets into, or funded, a foreign trust. It can reach migrants who set up or contributed to a trust before arriving in Australia, depending on when they became resident and whether they can control the trust. How much is attributed depends on whether the trust is in a listed or an unlisted country, with the unlisted-country position being far harsher. Anyone who has moved value to a foreign trust should check their position before assuming distributions are the only concern.
A trust or estate can become an Australian resident more easily than people expect. It is treated as a resident for an income year if a trustee was an Australian resident at any time in the year, or if its central management and control was in Australia at any time in the year.
Read those two small words carefully: “a” trustee, and “or”. You do not need all the trustees to be resident, and you do not need management in Australia as well — either limb is enough.
The consequence in estate planning is real. Appoint an Australian-resident executor or trustee to a foreign estate, even alongside overseas ones, and the estate can become an Australian resident for that year, pulling its worldwide income into the Australian net.
There is a sting on the way out as well. If a foreign trust later stops being an Australian resident — for example, because a resident trustee resigns — that change can trigger a capital gains tax event on the trust’s assets. The tax can fall due at a time when there is no ready cash to pay it. Changing trustees of a cross-border trust is not an administrative detail; it can be a taxing event.
Double tax agreements and their tie-breaker tests can change these residency outcomes, and they differ from country to country, so the treaty has to be read in each case.
A checklist before and during a review
- Have you gathered the deed or will, the resolutions or distribution statements, and the trust accounts?
- Can you evidence the original capital settled on the trust, and a date-of-death value where relevant?
- Are you relying on a low-risk compliance approach — and do the timing and value limits actually apply?
- For any borrowing from a foreign trust, have you considered a private ruling first?
- Did an Australian resident ever transfer value to the trust, raising the transferor trust rules?
- Is any executor or trustee an Australian resident, and could a trustee change trigger a CGT event?
Frequently asked questions
You do. The burden is on the Australian beneficiary to show that an exclusion applies. If you cannot, the ATO can treat the whole amount as assessable income.
At a minimum, the trust deed or will, signed trustee resolutions or distribution statements, and the trust’s financial accounts. Evidence of the original capital settled on the trust and a date-of-death valuation are often needed too.
A missing document is not fatal. The standard is the ordinary civil standard, and credible evidence — including first-hand recollections supported by the records you do have — can discharge the burden. A guideline’s document list is not the law.
Yes. If an Australian resident transferred value to a non-resident trust, the transferor trust rules can tax that resident on the trust’s income as it arises, whether or not anything is distributed.
It can. A trust or estate is an Australian resident for a year if any one trustee is an Australian resident at any time, or if it is managed and controlled here. An Australian-resident executor can make a foreign estate Australian-resident for that year.
Bring Westcourt in before the ATO does
The strongest defence to a review is built before the review starts, and often before the distribution is made. Once the ATO is asking questions, you are gathering decades-old records under pressure, with the burden of proof on you.
Westcourt can assemble the evidence, test whether a low-risk approach applies, check the transferor trust and residency positions, and deal with your overseas adviser so the file holds together. The earlier we are involved, the more we can protect.
Speak with Westcourt before any foreign distribution is made, and before changing the trustees or executors of a cross-border structure.
General information only; not personal tax advice. Current ATO guidance: TD 2024/9 and PCG 2024/3. Last updated June 2026.
Connect with our team today
