ATO ID 2003/161: Trusts: Exempt beneficiary and the application of section 99A
Date of decision: 20 December 2002
Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Business line: Business and Personal Tax Centre of Expertise

Issue
Does section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the income of a trust to which a beneficiary is presently entitled when the beneficiary is exempt from income tax?

Decision
No. Section 99A of the ITAA 1936 does not apply to the income of a trust to which a beneficiary is presently entitled when the beneficiary is exempt from income tax.

Facts
A trust is established for the benefit of a sole beneficiary. The beneficiary has a vested and indefeasible interest in all of the income of the trust for an accounting period, regardless of whether or not the trustee determines to distribute it. The beneficiary is exempt from income tax pursuant to Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997).

Reasons for decision
Summary: Under section 99A of the ITAA 1936, the trustee of a trust estate is assessed on that part of the net income of the trust estate that is not included in the assessable income of a beneficiary in pursuance of section 97 of the ITAA 1936. Section 97 of the ITAA 1936 provides that a resident beneficiary shall include in their assessable income all the income of a trust estate to which they are presently entitled. As the beneficiary has a vested and indefeasible interest in all of the income of the trust, the beneficiary is presently entitled to all of the income of the trust estate and must include it in their assessable income. If an exempt entity is covered by section 50-5 of the ITAA 1997, section 50-1 of the ITAA 1997 applies to exempt the ordinary and statutory income (that is, assessable income) of that entity from income tax. As all of the trust income is first included in assessable income of the beneficiary under section 97 of the ITAA 1936, before becoming exempt income by virtue of section 50-1 of the ITAA 1997, there is no part of the income of the trust estate to which section 99A of the ITAA 1936 will apply.

Legislative references: Income Tax Assessment Act 1936 section 97 section 99A
Related ATO interpretative decisions: ATO ID 2002/242
Subject references: Exempt entities Exempt income Present entitlement Trust distributions