The foreign trust paid down her debt. No cash reached her. Section 99C caught it anyway.
Three cases the Applicant cites for procedural fairness in this (rare) s 99B decision. The first is misnumbered. The Tribunal says the second “does not appear to exist”. The third is about a different section. That is paragraph 121 of the decision.
Frizelle and Commissioner of Taxation [2026] ARTA 752.
The facts
Three trusts: the Plet Trust (Jersey, 2001), the Robin Earl Gilmour Trust (Guernsey, 2011) and the Megan Trust (Guernsey, 2006), all non-resident under s 95(2) and (3). The Applicant and her husband were the only Megan Trust beneficiaries in the relevant years [104-105].
On 14 June 2019 the REG Trust paid GBP 78,845.70 to the Megan Trust [49]. The Megan Trust paid GBP 39,422.85 of it back to the REG Trust on the Applicant’s behalf, to part-repay her and her husband’s joint USD 200,000 loan from the REG Trust [50-53].
On 24 October 2019, the REG Trust distributed GBP 58,229.81 to the Megan Trust [49]. The same amount reached the Applicant via her Mother on 4 November 2019 [56].
The loan-repayment trap
Section 99B(1) catches trust property “paid to, or applied for the benefit of” a resident beneficiary. Section 99C(1) reads “applied for the benefit” extremely broadly, and s 99C(2)(c) captures any “loan or a repayment, in whole or in part, of a loan”. Knowledge is irrelevant [84].
The GBP 39,422.85 the Megan Trust paid back to the REG Trust on the Applicant’s behalf was applied for her benefit. Discharge of part of her debt was the benefit. Assessable in the year ended 30 June 2019 [104, 183].
The other GBP 39,422.85 of the inflow never left the Megan Trust [50]; the husband was a co-beneficiary [39]. The Commissioner did not press it [48]. Set aside [183]. Distribution Two was wholly assessable in the 2020 year [105, 183].
The practitioner lesson
First, loan repayments by a foreign trust are a textbook s 99C(2)(c) trap. If the trust pays down your client’s debt, the amount is applied for their benefit, no cash needed.
Second, follow the cash leaving the trust, not the inflow.
Third, the corpus exception in s 99B(2)(a) is hollow without proof. The Applicant ran a chain-of-trusts corpus argument and lost the hypothetical resident taxpayer test, which under Howard [2012] FCAFC 149 cascades through every interposed foreign trust [101, 108-112].
Fourth, untested trustee letters and unsigned witness statements carry no weight [63-68].
Fifth, the Tribunal will check your authorities. The Applicant’s three procedural-fairness cases - one misnumbered, one that “does not appear to exist”, one about a different section - were each called out [121].
General information only. This note was accurate when written. The law may have changed since and the note is not updated. It is not legal or tax advice, does not take account of your circumstances and must not be relied upon as a substitute for advice on your own matter. If the issue is live for you or your client, email arda@nortonquaytaxlaw.com.au for advice on the current position.