On an Australian trust tax return, the 98T tax code marks the amount of tax the trustee owes under section 98 of the Income Tax Assessment Act 1936 on a non-resident beneficiary’s share of the trust’s Australian-source net income. The label sits on the trustee’s side of the ledger, not the beneficiary’s. Instead of the ATO chasing a beneficiary overseas, section 98 makes the trustee personally assessable, and the tax must be paid from trust assets before the distribution goes out.1Australian Taxation Office. Non-Resident Beneficiary Additional Information
Why the Trustee Is the Taxpayer
Section 98 does not treat the trustee as a filing agent for the beneficiary. It makes the trustee the taxpayer for the non-resident’s share. The ATO issues the assessment to the trustee, and the debt stays with the trustee until it is paid. That shift is the whole point of the mechanism: Australia collects the tax on income sourced here before the money leaves the country, rather than relying on a non-resident to self-assess from abroad.
Most trust deeds give the trustee a right of indemnity out of trust property for tax properly paid on a beneficiary’s account. Check the deed before distributing, because once the trust assets are gone the practical ability to recover the tax goes with them.
Section 98(3) vs Section 98(4)
Two subsections do the work, and the trust return reports them in separate fields:
- Section 98(3) applies when the non-resident beneficiary is an individual (not acting as a trustee) or a company. The trustee is assessed at the rates that apply to that beneficiary type.
- Section 98(4) applies when the non-resident beneficiary is itself the trustee of another trust. This is the layered-structure case, where one trust distributes to another trust whose management or control sits offshore.1Australian Taxation Office. Non-Resident Beneficiary Additional Information
Both routes lead to the same outcome. The trust return’s non-resident beneficiary section is where the amounts are declared, and putting a figure in the wrong subsection line is the kind of error that surfaces later during ATO review.
Who Counts as a Non-Resident Beneficiary
Residency is tested at the end of the income year, 30 June. Australia uses several tests, and a beneficiary who fails all of them is a non-resident for the year.
Under the domicile test, an individual with an Australian domicile is a resident unless their permanent place of abode is outside Australia. Under the 183-day test, someone present in Australia for more than half the income year is a resident unless their usual place of abode is overseas and they have no intention of settling here.2Australian Taxation Office. Residency – The 183-Day Test
For a trustee beneficiary caught by section 98(4), the question is whether the trust entity itself is managed or controlled principally from outside Australia. Central management overseas makes the trust non-resident for these purposes.
Partial-year non-residency does not switch section 98 off. The trustee still applies it to the share of income attributable to the non-resident period. Keep the supporting evidence, such as passport pages or a foreign tax identification number, in the file. Misclassification in either direction forces an amended return.
What Income Is Actually Caught
Only the non-resident’s share of Australian-source net income falls inside the section 98 assessment. Foreign-source income flowing through the trust to a non-resident sits outside the regime.
Several categories drop out because they are already taxed through other mechanisms:
- Unfranked dividends, interest, and royalties, which are subject to withholding tax at source.
- Fully franked dividends, which carry imputation credits for corporate tax already paid.
- Managed investment trust distributions where the trust has already withheld an amount from the foreign resident’s distribution.3Australian Taxation Office. Non-Resident Beneficiary Additional Information
What is left includes Australian rental income, business income earned in Australia, and capital gains on taxable Australian property. One trap: for a discounted capital gain flowing to a non-resident trustee beneficiary under section 98(4), the trustee must include double the discounted amount. Non-residents do not get the CGT discount, and the gross-up puts the full gain back into the assessable base.
Rates the Trustee Applies
The trustee applies the foreign resident tax rates for the relevant income year to the assessable amount. There is no tax-free threshold, so tax runs from the first dollar.
For 2025–26:4Australian Taxation Office. Tax Rates – Foreign Resident
- $0 to $135,000: 30 cents per dollar
- $135,001 to $190,000: $40,500 plus 37 cents per dollar over $135,000
- $190,001 and above: $60,850 plus 45 cents per dollar over $190,000
These rates changed from 1 July 2024. The prior 32.5% rate on the first $120,000 was replaced by the 30% rate on the first $135,000, which lowers the bill for most non-resident beneficiaries whose share sits in that band.
Reporting the Amount and Paying It
The 98T figure is entered in the non-resident beneficiary section of the trust tax return. Section 98(3) amounts and section 98(4) amounts go in their own fields.1Australian Taxation Office. Non-Resident Beneficiary Additional Information The return can be lodged electronically or through a registered tax agent.
After lodgment the ATO issues a notice of assessment to the trustee. The notice confirms the debt, shows any credits already applied, and states a payment due date.5Australian Taxation Office. Your Notice of Assessment When paying, use the payment reference number tied to the trust’s income tax account, not one for activity statements or another tax type; each obligation has its own PRN and payments are matched by that number.6Australian Taxation Office. Other Payment Details – Section: Payment Reference Number
The tax is paid from trust assets. Confirm the deed’s indemnity clause first, then settle the section 98 liability before the residual distribution leaves the trust.
What Getting It Wrong Costs
Understating the section 98 amount, or leaving it off, creates a shortfall that attracts administrative penalties under Division 284 of Schedule 1 to the Taxation Administration Act 1953. The base rate depends on culpability:7Australian Taxation Office. Practice Statement Law Administration PS LA 2008/18
- 25% of the shortfall for a position that is not reasonably arguable but reflects a genuine attempt to comply.
- 50% for reckless conduct, such as ignoring an obvious reporting obligation.
- 75% for intentional disregard of the law.
Those base amounts can move up or down depending on voluntary disclosure and compliance history.
The general interest charge runs on any unpaid tax from the day after it was due, compounding daily. For the first half of 2026 the GIC sits at roughly 10.65% to 10.96% per year.8Australian Taxation Office. General Interest Charge (GIC) Rates On a sizeable trust distribution the interest builds quickly, which is why paying promptly after the notice of assessment issues is worth prioritizing.
If the Beneficiary Is a U.S. Person
The 98T amount is the trustee’s Australian obligation. It does not discharge anything on the U.S. side. A U.S. beneficiary of an Australian trust generally has separate U.S. reporting for foreign trust distributions on Form 3520, and possibly FBAR obligations on FinCEN Form 114 where trust financial accounts outside the United States exceed $10,000 in aggregate at any point during the year.9Internal Revenue Service. Instructions for Form 3520 (12/2025)10Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) Those filings belong to the beneficiary, not the Australian trustee, and they run in parallel with the section 98 assessment rather than replacing it.