Private ruling: Commissioner's discretion - deceased estate
Date of advice: 28 October 2025
Published: 15 December 2025
Ruling period: 1 July 2024 to 30 Jube 2025
Date scheme commenced: 1 July 2024

Ruling: Q1: Will the Commissioner exercise the discretion under subsection 99A(2) of the ITAA 1936 to tax the net income of the trust estate to which no beneficiary is presently entitled under section 99? | A1: Yes

Relevant facts and circumstances: This description of facts is based on the following documents. The documents form part of and are to be read with this description. The relevant documents are: • Request for a private ruling, dated XX XX XXXX, including various attached documents such as the Will and Grant of Probate. • Request from the ATO for further information, dated XX XX XXXX. • Electronic response to the request from the ATO for further information, dated XX XX XXXX. The Deceased) passed away on XX XX XXX. The Deceased's Will (the Will) was dated XX XX XXXX. Probate of the Will (Probate) was granted to the sole executor nominated in the Will, Person A (the Trustee) on XX XX XXXX. At the time of Probate, the assets of the deceased estate (the Trust) consisted solely of investments held with an Australian Financial Services Licensee, in the form of shares held in public companies and with a value of approximately $X. During the period between the date of death of the Deceased and application for Probate, the Trustee was unaware of the existence of the investments held with the Australian Financial Services Licensee. During this period, the only assets known to have been owned by the Deceased at the date of their death was a refundable aged care accommodation deposit and cash at bank. Under the relevant rules relating to the administration of deceased estates, the Trustee distributed the accommodation deposit and cash at bank according to the terms of the Will, without needing to apply for Grant of Probate. When the Trustee became aware of the existence of the investments held with the Australian Financial Services Licensee, they applied for Probate so these assets could be sold, and the funds distributed according to the terms of the Will. Since Probate, the investments held with the Australian Financial Services Licensee have been sold and the proceeds deposited into the account of the Trust. Up until this disposal, the investments continued to generate income, and these were retained within the trust that arises out of the Trust. The Trustee treated this income as being that to which no beneficiary is entitled as the period of administration of the Trust had not yet been finalised at that time and, accordingly, the beneficiaries of the Will lacked a vested, indefeasible interest. In relation to the Trust and during the period to which this ruling relates: No person, at any time, directly or indirectly, transferred or lent any property (including money) to another trust. The Trustee did not hold shares, units or other similar interests that carried rights to receive discretionary distributions of income or capital. The Trustee was not a discretionary object in relation to another trust. In relation to the Trust and during the period to which this ruling relates, the property held by the Trustee consists, and has only ever consisted, of: property vested in the Trustee (that was vested in the Executor and listed in the Inventory of Property annexed to the Probate document) under the terms of Will; property that represents accumulations of income or capital from property that satisfies the requirement in (i); property from the sale of these assets of the Trust; and property from the re-investment of property that satisfies the requirement in (iii). In relation to the Trust and during the period to which this ruling relates: the assets of the Trustee consisted only of public company shares or other interests in widely-held entities; and the assets of the Trustee do not consist of, and have never consisted of: shares in any private companies or units in any private trusts; other property acquired at non-arm's length value; or loans provided to related parties.

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 Paragraph 99A(2)(a) | Income Tax Assessment Act 1936 Subparagraph 99A(2)(a)(ii) | Income Tax Assessment Act 1936 Subsection 99A(3) | Income Tax Assessment Act 1936 Paragraph 99A(3)(a) | Income Tax Assessment Act 1936 Paragraph 99A(3)(b) | Income Tax Assessment Act 1936 Paragraph 99A(3)(c) | Income Tax Assessment Act 1936 Subsection 99A(3A)

Reasons for decision: Summary: All references are to the ITAA 1936 unless otherwise stated. Subsection 98(1) applies to assess a trustee on a beneficiary's share of income where a beneficiary is presently entitled and is under a legal disability. Where no beneficiary is presently entitled in the relevant year of income, the trustee taxpayer is liable to be assessed under section 99A, unless the Commissioner is of the opinion that it would be unreasonable that section 99A should apply and that section 99 should apply instead (although, the tax-free threshold is only available to trustees of trusts where the deceased died less than 3 years before the end of the relevant year of income). Present entitlement A beneficiary is presently entitled to the net income of the trust where that beneficiary has an absolute and indefeasible vested interest in the trust income ( Taylor v. FC of T (1970)119 CLR 444; 70 ATC 4026; (1970) 1 ATR 582 ( Taylor's case )). IT 2622 - Income tax: present entitlement during the stages of administration of deceased estates states: 9. Beneficiaries cannot enjoy present entitlement to income derived by a deceased estate during the administration of the estate. Income of a deceased estate in income years before the administration of the estate is complete, is the income of the executors or administrators and is not income of the beneficiaries. ... 10. The leading Australian case on present entitlement under a trust arising during the course of administration of an estate is the decision of the High Court of Australia in F.C. of T. v. Whiting (1943) 68 CLR 199; 7 ATD 179. The Court held that a beneficiary of a deceased estate cannot be presently entitled to the income of the estate until the estate has been fully administered. In this case, administration of the Trust was incomplete at the time the income from the investments held with the Australian Financial Services Licensee was retained by the Trustee, therefore no beneficiary was presently entitled to that income. Accordingly, for the period to which this ruling applies, the Trustee is liable to be assessed under section 99A, unless the Commissioner is of the opinion that it would be unreasonable that section 99A should apply and that section 99 should apply instead. Qualifying for consideration of the discretion under subsection 99A(2) Under subsection 99A(2), section 99A will not apply to the net income of a resident trust estate retained by certain trust estates where 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...'. Instead, section 99 will apply to that net income such that the net income of the trust will be taxed at the progressive rates applicable to certain individuals rather than at the flat top marginal tax rate (although, the tax-free threshold is only available to trustees of trusts where the relevant person died less than 3 years before the end of the relevant year of income). In exercising the discretion, the Commissioner will have reference to the text of the legislation itself, the intent or purpose of the legislation and relevant case law as they apply to the facts and circumstances of a particular case for the purpose of forming the required opinion under subsection 99A(2). 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 (subparagraph 99A(2)(a)(i)). In this case, the Trust was created under the terms of the Will, therefore the Trust can be said to have 'resulted' from a will. Forming an opinion for the purposes of subsection 99A(2) 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. Purpose of section 99A of the ITAA 1936 Section 99A of the ITAA 1936 was introduced by the Income Tax and Social Services Contribution Assessment Act (No. 3) 1964 [1] . In its original form, it did not apply to deceased estates. When section 99A of the ITAA 1936 was amended in 1979 to apply to deceased estates, the EM to the Income Tax Assessment Amendment Bill (No. 6) 1979 stated (in relation to the exercise of the discretion in subsection 99A(2)): The criteria that the Commissioner is to use in considering whether it would be unreasonable that section 99A of the ITAA 1936 should apply in these cases will remain essentially the same as at present (sub-section 99A(3)). This will enable the result that, unless there are tax avoidance connotations , accumulating income in these cases will continue to be taxed under section 99, on the same basis as at present. (Because there had been tax avoidance exploitation of an earlier exclusion of deceased estates from the ambit of section 99A, those estates were, by section 6 of the Income Tax Assessment Amendment Act (No. 2) 1977 , in that year brought within its scope.) [Note to Clause 13] [ Emphasis added ] In the High Court case of Giris Pty. Ltd. V. Federal Commissioner Of Taxation [2] ( Giris ) Windeyer J described the purpose of section 99A of the ITAA 1936 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 : [3] 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. The language of the text contained in section 99A of the ITAA 1936, and case law, confirms that the type of tax avoidance at which section 99A is directed is broader than that facilitated by the use of multiple trusts. In Giris , the High court commented that: § ' ... the discretion is wide and though being really legislative in nature, what is relevant to its formation may range over an extremely wide spectrum of fact and consideration ...' [per Barwick J., at 374] § 'Here the Commissioner's discretion is apparently at large... I assume that [the Commissioner] is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. ... ' [Per Windeyer J., at 384] ATO Guidance Public Information Bulletin PIB No. 4: Income of a trust estate to which no beneficiary is presently entitled was published by the ATO in April 1965. Although PIB No. 4 is relevant when considering the way in which the Commissioner considers the exercise of the discretion in subsection 99A(2) of the ITAA 1936, its relevance is diminished due to events subsequent to its issue such as: • Legislative amendments to section 99A; and • Court and Board of Review decisions on s 99A(2). For instance, the Commissioner is required to consider the matters in subsections 99(3) and 99(3A) of the ITAA 1936 in forming his opinion for the purposes of the discretion in subsection 99A(2). It is noted that subsection 99(3A) was inserted into the ITAA 1936 in 1980. Consideration of paragraphs 99A(3)(a) and (b) During the period to which this ruling relates, assets held by the Trustee consisted only of investments held with the Australian Financial Services Licensee and cash at bank resulting from the disposal of those investments, these assets being: (i) property vested in the Trustees under the terms of the Will; (ii) property that represents accumulations of income or capital from property that satisfies the requirement in (i); (iii) property from the sale of these assets of the Trustee; and (iv) property from the re-investment of property that satisfies the requirement in (iii). In addition, the assets held by the Trustee do not consist of: • investments in any private companies or private trusts • other assets acquired at non-arm's length value or • loans related to related parties. No property has been transferred or lent to the Trust, nor any specifical rights, privileges or benefits conferred upon the Trust. Consideration of paragraph 99A(3)(c) In the current circumstances the 'other matters' that are considered to be relevant for the purposes of forming an opinion for the purposes of subsection 99A(2) are encapsulated by the matters enunciated by Member Thompson in Case A50 (69 ATC 288). Broadly, these matters involve the Commissioner having regard to the objects of the section in protecting, on the one hand, the revenue against tax avoiding devices and the interests of taxpayers generally in the equal distribution of the tax burden and, on the other hand, the right of the subject to make legitimate and reasonable family and business arrangements. Each of these matters will be considered in turn: | Detailed Reasoning - The Revenue should be protected against tax avoiding devices:: Based on the information available, the Trustee has not used its powers under to avoid tax. | Detailed Reasoning - The interests of taxpayers generally should be protected:: In considering the exercise of the discretion in subsection 99A(2) the Commissioner will consider whether the type of arrangement under consideration may cause the tax burden to fall unevenly on taxpayers. The discretion is to be exercised in way that will discourage arrangements that would otherwise result in tax avoidance. In this case, the Trust has exercised its powers a conventional manner (and not as a tax-avoidance device). | Detailed Reasoning - The right of the subject to make legitimate and reasonable arrangements relating to family and business matters should be protected:: The arrangements the Trustee has made to effect the terms of the Will appear to be legitimate and reasonable. | Detailed Reasoning - Arrangements which are for the good of the public generally should not be discouraged:: The Trust is not a trust of the type that is relevant to this consideration. | Detailed Reasoning - Trusts which arise out of the exercise of a public duty should not be penalised:: The Trust is not a trust of the type that is relevant to this consideration. Surrounding circumstances to also be considered In Case A50 Thompson suggested that [at 302 and 303], in the process of forming an opinion for the purposes of subsection 99A(2) the Commissioner should undertake, '[a] wide survey and close scrutiny of all the surrounding circumstances, including, but not by any means limited to' [emphasis added]: • 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. In relation to these 'surrounding circumstances' it is again noted that the circumstances in this case support a favourable exercise of the Commissioner's discretion: • the Trust arises out of the terms of the Will; • the manner in which those terms have been implemented are appropriate in the circumstances of the Trust - the overall effect to be achieved upon the tax affairs of all affected parties is subordinate and incidental to delivering the terms of the Will; and • the manner in which the Trustee has administered the Trust appears at all times to have been concerned only with fulfilling the above - the delay in reaching full administration of the Trust is fully explicable as being as a result of assets unknown to have been owned by the Deceased as at the date of their death. | Detailed Reasoning - Conclusion as to whether it is unreasonable for section 99A to apply to the Trust for the period covered by this ruling: The matters that are considered to be particularly relevant to forming the opinion for the purposes of subsection 99A(2) are: • The Trust resulted from a will and satisfies the requirement of paragraph 99A(2)(a)(i). • For the 2025 income year: - the Trustee has retained trust income. - tax has not been avoided by the exercise of the powers available to the Trustee. - the Trust has been administered in a conventional manner by the Trustee and not as a tax avoidance device. - the Trustee has not entered into arrangements beyond the purpose for which section 99 was retained in the ITAA 1936 of a type that the Commissioner will seek to discourage. - the assets held by the Trustee consist of: o assets vested in the Trustee and/or o property from the sale of the assets of the Estate that has been reinvested or held as cash. - The assets held by the Trustee do not consist of: Having regard to the above matters, and the legislated purpose of section 99A to prevent the use of trusts for tax avoidance, the Commissioner is of the opinion that it is unreasonable for section 99A to apply to the Trust in respect of the period to which this ruling applies. Please note that in the first three income years after the date of death of the Deceased, ordinary individual tax rates applied to the net income of the Trust, including the tax-free threshold. The first income year to which these rates applied is that in which the Deceased died - the XXXX income year. Beyond the first three income years after the date of death of the deceased, special progressive (section 99) tax rates apply to the income of the estate. These rates will apply to the income year to which this Ruling relates. [1] Act No. 110 of 1964 [2] (1969) 119 CLR 365 [3] 72 ATC 4169; (1972) 128 CLR 595

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.