Private ruling: Taxation of trusts.
Published: August 2014
Ruling period: Income year ended 30 June 2014 | Income year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise the discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax that share of the net income of the trust estate to which no beneficiary is presently entitled under section 99 of the ITAA 1936 | A1: Yes

Relevant facts and circumstances: The deceased died on x. Probate was granted to the executors of the estate on x. The assets of the estate consisted of real property, cash funds held in bank and share in publicly listed companies. The estate has no liabilities. The will of the deceased provided that an equal one-third share of the residuary estate devolves to each of two adult beneficiaries the final one-third share to the grandchildren of the deceased upon the youngest grandchild reaching x years of age. The adult beneficiaries are presently entitled to their respective shares. The youngest grandchild is not yet x years of age and therefore, the grandchild beneficiaries are not presently entitled to the funds of the estate. The youngest grandchild will not reach this age until x. Consequently, the estate cannot be full administered in respect to this one-third share until x.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A

Reasons for decision: Summary: Section 99 and 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to assess a trustee on income to which no beneficiary is presently entitled or income which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A. Section 99A does not apply to a trust estate in relation to a year of income where the trust estate: (a) that resulted from: (i) a will, codicil or an order of a court that varied or modified the provisions of a will or a codicil; or (ii) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estate of persons who die intestate; (b) that consists of the property of a person who has become bankrupt, being property that has vested in The Official Receiver in Bankruptcy, or in a registered trustee, under the Bankruptcy Act 1966; (c) that is administered under Part XI of the Bankruptcy Act 1966; or (d) that consists of property of a kind referred to in paragraph 102AG(2)(c); if 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. In this case the trust resulted from the will of deceased and therefore is within the categories of trusts where discretion may be considered. Subsection 99A(3) of the ITAA 1936 lists what matters should be considered by the Commissioner when deciding whether section 99A of the ITAA 1936 should apply to a trust estate. It states: 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 right or privilege has 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 along 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 had 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 thinks fit. In this case, the assets of the Estate consist only of assets acquired by the deceased. In addition, there have been no properties transferred, nor loans granted to the estate. Therefore, it is the Commissioner's opinion that section 99A of the ITAA 1936 will not apply to the estate. The estate will therefore be assessed on income to which no beneficiary is presently entitled under section 99 of the ITAA 1936 for the relevant income years.