Private ruling: Certain trust income to be taxed at special rate
Date of advice: 26 November 2025
Published: 12 January 2026
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936)to apply progressive rates of tax as per section 99 of the ITAA 1936, in respect of the income year ended 30 June 20XX? | A1: No. | Q2: Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936)to apply progressive rates of tax as per section 99 of the ITAA 1936, in respect of the income years ending 30 June 20XX to 30 June 20XX? | A2: The Commissioner declines to rule in respect of this question

Relevant facts and circumstances: Background The Deceased died on DD MM 20XX. The Will of the Deceased (the Will) was dated DD MM 20XX. The Will A Copy of the Will has been provided. The Will includes clauses in relation to the following: • Distribution of the Deceased's interest in Trust Y; • Trustee Companies; • Establishment of Testamentary Trusts to hold the Deceased's residuary estate; and • Testamentary trust provisions The Applicant of this ruling (Trust X) is a testamentary trust that hold a part of the Deceased's residuary estate. The Testamentary trust provisions effectively constitute the terms of the Trust Deed of Trust X. The Trust Deed of Trust X defines the following: • Beneficiary; • Eligible Trust; and • Named Beneficiary or Named Beneficiaries. A Clause in the Will provides that the Named Beneficiary of Trust X is one of the children of the Deceased. Inventory of Assets and Liabilities for Probate purposes An inventory of assets and liabilities for probate purposes has been provided. Assets of Trust X The share of the residuary estate that vested in the Trustee of Trust X from the Executors of the Will of the Deceased consisted of: • XX shares in the Trustee company of Trust X (Company X); • XX shares in another company; and • A defeasible interest in Trust Y Trust Y Trust Y was settled on DD MM YYYY. The trustee of Trust Y is Company X. Trust Y is a discretionary trust. Copies of Trust Y Trust Deed and all relevant amendments to the Trust Y Trust Deed have been provided. The Trust Y Trust Deed provides the following: • Through the definitions provided in the Trust Y Trust Deed, it can be established that: - The Deceased is a specified persons under the Trust Y Trust Deed; and - Trust X is a primary beneficiary of Trust Y; • Any income which the Trustees determine to accumulate may be dealt with as an accreditation to the capital of the trust fund; • The Trustees has discretion to distribute and accumulate income declared and capital declared; • Without the Trustee exercising the power provided under the relevant clauses, the income declared and the capital declared, generally, will be distributed to the Primary Beneficiaries Company X made a resolution on DD MM 20XX in respect of the income year ended 30 June 20XX. It provided the following: • It was resolved that the net income of the Trust Fund will be determined as net trust income for the income year ending 30 June 20XX; • It was resolved to accumulate for the year ending 30 June 20XX, within the trust fund so much of the net income as would result in a taxable accumulation of $XXX. • It was resolved for the year ending 30 June 20XX to distribute to beneficiaries (including Trust X) the net income and capital. Income of Trust X The property held by Trust X as at 30 June 20XX consisted of a bank account and an interest in Trust Y. For the income year ended 30 June 20XX, the Trust had assets totalling $XXX and liabilities totalling $XXX. For the income year ended 30 June 20XX, the Trust received distribution income totalling $XXX, which includes distribution from Trust Y The source of the trust income for income year ended 30 June 20XX will be the same as in the past, being the distribution from Trust Y. After bringing each beneficiary's taxable income to $XXX, Trust X will retain the balance. The private binding ruling has been requested to be able to retain income within Trust X.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 subsection 99A(2) | Income Tax Assessment Act 1936 subsection 99A(3) | Income Tax Assessment Act 1936 subsection 99A(3A) | Taxation Administration Act 1953 section 357-110 | Taxation Administration Act 1953 subsection 357-110(1) | Taxation Administration Act 1953 paragraph 357-110(1)(a)

Reasons for decision: Summary: The Commissioner will not exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to apply progressive rates of tax as per section 99 of the ITAA 1936, in respect of the income year ended 30 June 20XX. | Detailed Reasoning - Detailed Reasoning: All legislative references are to the ITAA 1936 unless otherwise stated. | Detailed Reasoning - The relevant legislation: Under subsection 99A(2) the rates of taxation applicable to section 99A will apply to the net income of a resident trust estate accumulated unless the '... Commissioner is of the opinion that it would be unreasonable that this section should apply in relation to that trust estate in relation to that year of income...' The types of trust estate in respect of which the Commissioner's discretion may be exercised are listed in paragraphs 99A(2)(a) to (d) and include a trust estate that resulted from a will (paragraph 99A(2)(a)). In forming the opinion for the purposes of subsection 99A(2) the Commissioner is required to have regard to the matter subsections 99A(3) and (3A). These provide: 99A(3) In forming an opinion for the purposes of subsection (2): a) the Commissioner shall have regard to the circumstances in which and the conditions , if any, upon which, at any time, property (including money) was acquired by or lent to the trust estate , income was derived by the trust estate , benefits were conferred on the trust estate or special rights or privileges were conferred on or attached to property of the trust estate , whether or not the rights or privileges have been exercised; b) if a person who has, at any time, directly or indirectly: I. transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or II. conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate whether or not the right or privilege has been exercised; has not, at any time, directly or indirectly: III. transferred or lent any property (including money) to, or conferred any benefits on, another trust estate; or IV. conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of another trust estate, whether or not the right or privilege has been exercised; the Commissioner shall have regard to that fact ; and c) the Commissioner shall have regard to such other matters, if any, as he or she thinks fit. 99A(3A) For the purposes of the application of paragraph (3)(a) in relation to a trust estate of the kind referred to in paragraph (2)(a), a reference in that first-mentioned paragraph to the trust estate shall be read as including a reference to the person as a result of whose death the trust estate arose. [ Emphasis added ] | Detailed Reasoning - Purpose or intent of section 99A: In the High Court case of Giris Pty. Ltd. V. Federal Commissioner Of Taxation [(1969) 119 CLR 365] ( Giris ) Windeyer J described the purpose of section 99A as: That purpose I take it is to enable the Commissioner to keep s. 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. [at 384] This view was confirmed by Stephen J in the High Court case of Perron (as trustee for the L.M. Brennan Trust) v. Federal Commissioner of Taxation [72 ATC 4169; (1972) 128 CLR 595]: The views of Windeyer J. in the Giris case regarding the legislative purpose given effect to by sec. 99A(2) have already been quoted in the Commissioner's letter. I would, with respect, adopt those views of that legislative purpose. [at 4171] Therefore, it is reasonable to conclude that the purpose of section 99A of the ITAA 1936 is to prevent the use of trusts to avoid tax. In determining whether tax has been avoided by a trust in any particular year of income it is not necessary to ascertain a particular amount of tax avoided. However, it should be demonstrable that tax has been avoided. In Case A50 [69 ATC 288]A. M. Donovan (Chairman) put it this way: That the Legislature found it necessary to confer the discretion is most readily explicable on the basis that it desired to leave undisturbed the trusts against which the section was not directed and yet was unable to formulate a description either of these trusts or those which it was intended the section should comprehend. If it is accepted that the purpose of the section is to prevent tax avoidance (and that was the view which commended itself to Windeyer J. in Giris's case (supra) ), then, in spite of the absence of any guidance from the words of the section itself, the manner in which the discretion is to be exercised appears to me to be plain. It should be exercised to take outside the operation of the section trusts which are not contrary to the purpose of the section, that is to say, the prevention of tax avoidance. If, in any year, a trust itself cannot be considered an actual or a possible tax avoidance device and it is not part of a wider scheme for tax avoidance, it is not a trust of the type against which sec. 99A was intended by the Legislature to operate and the opinion ought to be formed that it would be unreasonable for sec. 99A to apply to it. ...[At 290] [ Emphasis added ] Chairman Donovan also found that it was ' ... not possible to say of the trusts [relevant to that case] that they are not, during the year under consideration, devices for the avoidance of tax... ' because: The discretions which the trust instruments contain would enable the income included in the trustee's assessments of the year under review to be paid at some future time to beneficiaries who, during the year under review, are themselves subject to tax. If that happened, and if the trustee were assessed under sec. 99, then the combined taxes of the trustee and beneficiaries of the subject year would be less than that which would be paid by the beneficiaries if the trust income had gone directly to them and there would be an avoidance of tax. [at 10] This confirms that section 99A does not contain a ' de minimis rule' that applies to the level of tax avoided for the purpose of considering the exercise of the discretion in subsection 99A(2) - all that is required is that tax has been avoided. | Detailed Reasoning - Factors to be considered for the purposes of the discretion in subsection 99A(2): In Case A50 G. R. Thompson (Member) proposed a number of factors that should be considered for the purposes of the discretion in subsection 99A(2) of the ITAA 1936: [at 302] 1. Protection of the revenue - This first proposition needs no lengthy exposition. It accords with my understanding of a clear policy of the Income Tax Assessment Act , and indeed of all taxing statutes. In the Income Tax Assessment Act , it finds its highest point in sec. 260. 2. The interests of taxpayers generally - This principle is, I think, complementary to the first principle, for it is trite to say that each successful tax avoiding scheme results in a proportionate increase in the tax burden to be borne by all other taxpayers. In taking into account this principle, it would, I think, be relevant to consider whether the type of arrangement under consideration in any particular case is wide-spread or increasing in its incidence. The discretion could then be exercised to discourage practices which are causing the tax burden to fall unevenly on taxpayers within a particular class. 3. Protection of legitimate and reasonable family and business arrangements - The right of an individual to deal with his own property and to arrange the affairs of his family and his business in any way that he sees fit, subject only to the restrictions imposed by statute or common law, is, I think, well entrenched in the sociological, political and legal structure of the Australian community. It seems to me that it would be inappropriate to use a discretion under a taxing statute to discourage the exercise of that right except in cases where such an exercise is to the detriment of the community at large. 4. Arrangements for the good of the public generally - One can readily envisage arrangements which fall for consideration under sec. 99A being of such a kind that, if such arrangements were discouraged, the springs of charity might tend to dry up. An example of such an arrangement would be a voluntary trust established inter vivos for the maintenance or education either of an infant or of a person of full age who is, say, mentally defective to the extent that he is under legal disability. The purpose and effect of such a trust could be to prevent the beneficiary from becoming a charge on the State. I would regard it as inappropriate, in the absence of any countervailing consideration, to use the discretion under sec. 99A to discourage such a charitable exercise. 5. Trusts arising out of the exercise of a public duty - Under this head I would include the administration of trusts such as those imposed upon trustees in bankruptcy by the Bankruptcy Act or those imposed upon officers of the court by order of the various courts. Under the broad terms of sec. 99A these fall for consideration and it seems to me that, to the extent to which the discretion under sec. 99A would be exercised to the detriment of such trusts, the purposes of the statute or the order under which the trusts come into being would be frustrated. By considering these matters in Case A50 Thompson stated that [at 302 and 303]: 15. On the foregoing broad bases, it seems to me to be possible to distinguish in particular cases those in which it would be proper to invoke the deterrent effect that can arise by the exercise of the discretion one way or the other... The process of forming the opinion that one is obliged to form will involve the difficult, but perhaps not impossible, task of weighing the merits of each case to decide whether they fall on the side of those practices that ought to be discouraged because of the preponderance of undesirable elements or on the side of those which ought not to be discouraged because they produce a desirable social result. 16. ... A wide survey and close scrutiny of all the surrounding circumstances, including, but not by any means limited to, an examination of the terms of any relevant instrument, the manner in which those terms have been or are capable of being implemented, the circumstances under which the trust is called into being, the overall effect achieved or sought to be achieved upon the tax affairs of all parties directly or indirectly affected by the trust and the manner in which the arrangement is administered, would be called for. This enquiry should, I think, furnish the mind in such a way that the scale will fall either on the side of practices which ought to be discouraged or on the side of those which ought not to be the subject of any deterrent. It needs to be noted that the decision in Case A50 was delivered in 1969 (i.e., prior to the 1977 and 1979 legislative amendments to section 99A). The factors proposed by Thompson in Case A50 seem to be derived from the Judgement of Barwick CJ in Giris (at 4017) when he commented that the: ... [Commissioner] is able to make the choice in exercise of what, for want of a more precise expression I shall call a legislative discretion: he can apply one section rather than the other if he thinks it unreasonable to apply the latter of them. I have been unable to find any content for the word ''unreasonable'' in the context of the two sections except considerations of a kind upon which a legislature acts in deciding whether an enactment or its particular terms are or are not unreasonable having regard to the interests of the public generally, of the citizen to be affected, of the Revenue and of the requirements of those policies, political, economic and fiscal which the Parliament is prepared to sanction.... In Giris , Windeyer J. alluded to the importance the Commissioner applying the principles of good administrative decision making when he stated (at 4024): ... However I assume that he is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. That would exclude from his consideration any matter which it would be unlawful for him to take as a criterion, such as the State of residence of a trustee or of the beneficiaries of a trust. It would also, I think, exclude all merely fanciful and prejudiced tests which were hypothetically suggested in argument, such as vocation, religion, colour of skin or hair. Nevertheless the statute seems to allow great latitude to the Commissioner in forming his opinion. That he has formulated certain considerations by which he is guided, and made them publicly known, may be important as shewing that in the exercise of his statutory discretion he acts honestly, consistently, and, as he thinks, in accordance with the legislative purpose. That purpose I take it is to enable the Commissioner to keep s. 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. But that the purpose of an enactment is understandable, would not cure its invalidity if it were invalid. It is considered that the matters enunciated by Thompson in Case A50 satisfy the requirements of Giris and provide an appropriate framework containing the relevant matters to be considered by the Commissioner in relation to the discretion in subsection 99A(2). | Detailed Reasoning - Application to the facts: Trust X is a trust estate that resulted from a will for the purposed of paragraph 99A(2)(a). In forming the opinion for the purposes of subsection 99A(2) the Commissioner is required to have regard to the matters in subsection 99A(3) and (3A). In relation to the matters mentioned in 99A(3) the following is noted: • Trust X was established to hold the Deceased's residuary estate. The share of the residuary estate that vested in the Trustee of Trust X from the Executors of the Will of the Deceased consisted of: - XX shares in Company X - XX shares in another company; and - a defeasible interest in the Trust Y. • Trust Y is a discretionary trust. The Trustees of Trust Y has discretion to distribute and accumulate income declared and capital declared of Trust Y. Further, in default of the Trustees exercising the power provided under the Trust Y Trust Deed, generally, the income declared and capital declared will be distributed to the Primary Beneficiaries. • Company X as the trustee of Trust Y made a resolution on DD MM 20XX, in respect of the income year ended 30 June 20XX relevantly provided for a distribution of net income of Trust Y to Trust X. By inference, it is noted that the distribution to Trust X was in respect to its status as a 'discretionary object' of Trust Y and not as a default beneficiary under the Trust Y Trust Deed. • The source of the trust income for the income year ended 30 June 20XX will include distribution from the Trust Y. That is, the income of Trust X is not being derived from the assets of the Trust. Instead, it is being derived from distribution from a discretionary trust - Trust Y. The Trustee of Trust X will have assessable income for the year ended 30 June 20XX as the Trustee will retain the balance of the Trust income after binging each beneficiary's taxable income to $XXX. Further, having regard to the matters described in Case A50 it is noted that: • The Revenue should be protected against tax avoiding devices: The purpose of section 99A is to prevent tax avoidance. Trust X received distributions from Trust Y and should it retain that income, it will be assessed at section 99A rates. If the Commissioner favourably exercise the s 99A(2) discretion, section 99 tax rates will be applied to the Trustee. This will result in tax being avoided. • The interests of taxpayers generally should be protected: This factor requires that the discretion should be exercised to discourage practices which are causing the tax burden to fall unevenly on taxpayers within a particular class. - There would be a risk to the Australian Taxation System if assets that were not owned by a deceased person, as at the time of their death, (regardless of whether they had been effectively controlled by that person) were allowed to form part of their estate. - Where income of a trust is derived due to the exercise, or non-exercise of a discretion, of a discretion of a trustee of another discretionary trust, then such income will not be derived from assets that vested in the trustee of a testamentary trust that can be traced to assets that were owned by the deceased person, as at the time of their death. In this case, in respect of the income year ended 30 June 20XX, a distribution of income has been made to Trust X due to its status as a 'discretionary object' of Trust Y. Such income was derived due to the exercise of a discretion by the trustee of another discretionary trust. - Had, instead, the distribution from Trust Y, been made to Trust X for being a default beneficiary of Trust Y, the Commissioner's view would be the same. This is because the distribution of income would have been from another discretionary trust and as the result of the non-exercise of a power. Therefore, while the 'default beneficiary' interest in Trust Y formed part of the estate of the Deceased, and vested in the Trustee of Trust X, the interest was vested (but defeasible) and was in respect of another trust, that was a discretionary trust. - We are of the view that distributions from a discretionary trust to an estate is a practice which ought to be discouraged and, on our view, goes beyond the purpose for which the section 99 treatment was maintained in the act. • The right of the subject to make legitimate and reasonable arrangements relating to family and business matters should be protected and the interests of taxpayers generally should be protected: This factor requires that, although arrangements may relate to familial matters, they must not be detrimental to the community at large. - This factor related to the right of an individual to deal with his own property and to arrange the affairs of his family and his business in any way that he sees fit, subject to the restrictions imposed by statute or common law. In Case A50 Davies (in commenting on Windeyer J's comments at 4017 in Giris ) stated that: What their Honours had in mind, I think, was this. Trusts are a proper means of achieving legitimate social, family and business objectives, objectives of a non-fiscal nature. They are also a means of achieving fiscal objectives, a means of avoiding or lessening the burden of tax. ... In cases where trusts are used as instruments to achieve both fiscal and non-fiscal ends - and competent draftsmen properly keep taxation laws in mind when preparing documents which affect a client's property and income - a decision must be reached, on the facts of each particular case as to which should prevail on balance, the interests of the Revenue or legitimate interests of the beneficiaries under the trust. [At 297] § The Inventory of Assets and Liabilities for Probate purposes documents the property owned by the Deceased at the time of his death. The document lists shares in Company X as Trustee for Trust Y. The decision for Company X to hold its assets as the Trustee of Trust Y, and not the Deceased in his individual capacity was an exercise of, '...right of an individual to deal with his own property and to arrange the affairs of his family and his business in any way that he sees fit...' But, in making this decision, it took the assets that are held by Company X out of the class of property that could be described as 'assets of the deceased at the time of his death'. | Detailed Reasoning - Conclusion as to whether it is unreasonable for section 99A to apply to the Trust in respect of the income year ended 30 June 20XX.: As per the approach of Barwick CJ in Giris , the opinion formed for the purpose of the subsection 99A(2) discretion is to be formed after the above consideration of the interests of the public generally, the persons affected, the revenue effect and the political, economic and fiscal policies of the Government which may be impacted. The matters that are considered to be particularly relevant to forming the opinion for the purposes of subsection 99A(2) are: • Trust X resulted from a will; • The assets held by Company X, as trustee for Trust Y, are not assets of the Deceased at the time of his death; • Trust Y is a discretionary trust; • The distribution from Trust Y to Trust X involve exercise of a discretionary power of the trustees of the Trust Y; • There would be a risk to the Australian Taxation System if assets that were not owned by a deceased person (regardless of whether they had been effectively controlled by that person) were allowed to form part of their estate. We are of the view that this is the type of risk that 99A of the ITAA 1936 was intended to address; • We are of the view that the distributions from a discretionary trust to a testamentary trust is a practice which ought to be discouraged and, on our view, goes beyond the purpose for which the section 99 of the ITAA 1936 treatment was maintained in the act; and • Tax will potentially be avoided if the distributions received by the Trust are assessed under section 99 of the ITAA 1936. After considering these matters the Commissioner is not of the opinion that it is unreasonable for section 99A to apply to Trust X in respect of the income year ended 30 June 20XX. | Detailed Reasoning - Question 2: Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to apply progressive rates of tax as per section 99 of the ITAA 1936, in respect of the income years ended 30 June 20XX to 30 June 20XX? | Detailed Reasoning - Answer: The Commissioner declines to rule in respect of this question. | Summary: The Commissioner declines to rule in respect of Question 2 in accordance with paragraph 357-110(1)(a) of the TAA 1953. | Detailed Reasoning - Detailed Reasoning: In respect of Question 2 it is noted that: • In forming the opinion for the purposes of subsection 99A(2) the Commissioner is required to have regard to the matter subsections 99A(3), which include whether rights or privileges exist and whether, if they do exist, they have been exercised; • The composite phrase 'rights or privileges' includes a reference to the potential for benefits to be received from a discretionary trust (either as a 'discretionary object' or a 'default beneficiary') related to the exercise, or non-exercise, of a discretion by the trustee of the discretionary trust; • The Commissioner, in forming the opinion for the purposes of subsection 99A(2), will also have regard to whether the net income of a testamentary trust has been derived from assets that vested in the trustee of the testamentary trust that can be traced to assets that were owned by the deceased person, as at the time of their death; • The question relates to a 'prospective' portion of the Ruling Period such that the facts that comprise the scheme facts to be ruled upon by the Commissioner do not, solely, relate to past events; • Where the correctness of a ruling depends upon unknowable facts, such as in relation to future events, the Commissioner may make assumptions under subsection 357-110(1) of the Taxation Administration Act 1953 (TAA 1953), as to those future events; • In this case it is not considered appropriate for the Commissioner to make assumptions as to the types of income that will be derived by the Trustee of Trust X during the prospective part of the Ruling Period (i.e., the income years ended 30 June 20XX to 30 June 20XX) as: - In respect of the income year ended 30 June 20XX, the net income of the Trustee of Trust X consisted only of a distribution of income from a discretionary trust (i.e., Trust Y), as a discretionary object of that trust; - In respect of the income year ended 30 June 20XX, the Trustee of Trust X derived no income from assets that vested in the Trustee that can be traced to assets that were owned by the Deceased, as at the time of his death; - The derivation of income by the Trustee of Trust X, as a discretionary object of Trust Y, in respect of the income year ended 30 June 20XX, contributed to the Commissioner forming an opinion that it is not unreasonable for section 99A to apply to the Trust; - An inference is not available, from the facts, that income will be derived by the Trustee of Trust X that is not related to distributions from one, or more, discretionary trusts; and - In the context of section 99A (i.e., an anti-avoidance provision) it is not appropriate to make assumptions as to how the trustee of another discretionary trust will exercise the dispositive discretions available to it. As: • it is considered that the correctness of the private ruling, in respect of Question 2, will depend on which assumptions were made about a future event; • the Commissioner declines to make any assumptions that the income derived by the Trustee of Trust X throughout the prospective part of the Ruling Period will be of a type that is commensurate with the Commissioner favourably exercising the subsection 99A(2) discretion; the Commissioner declines to rule in respect of Question 2 in accordance with paragraph 357-110(1)(a) of the TAA 1953.