Private ruling: The exercise of the Commissioner's discretion
Date of advice: 1 November 2016
Published: February 2017
Ruling period: Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the trustee on income that no beneficiary is presently entitled to under section 99 of the ITAA 1936? | A1: Yes

Relevant facts and circumstances: The taxpayer passed away in financial year ending 30 June 20XX. In accordance with the terms of the Will, the beneficiaries of the estate include various family members of the taxpayer. The estate has not been wound up due to ongoing litigation involving a challenge to the Will. The income of the estate is derived from assets held after the death of the taxpayer. The executors have not borrowed from others nor lent money to others. There have been no assets transferred into the estate since the date of death. There are no special rights of privileges attached to the property of the estate. The estate is expected to be wound up in financial year ending 30 June 20XX.

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

Reasons for decision: Summary: Sections 99 and 99A of the ITAA 1936 operate to tax trustees if there is part of the net income of a trust estate that is not taxed to a beneficiary under section 97 or the ITAA or to the trustee under section 98 of the ITAA 1936. Section 99A of the ITAA 1936, which imposes a higher rate of tax, applies automatically unless the trust estate is of a type specified in section 99A(2) of the ITAA 1936 and the Commissioner considers that it would be unreasonable for section 99A of the ITAA 1936 to apply. A trust estate that results from a Will or intestacy is a type of trust estate in respect of which the Commissioner may form an opinion it would be unreasonable for the section to apply. In exercising the discretion, the Commissioner is concerned with whether the trust has been created or maintained for the purpose of tax avoidance ( Giris Pty Ltd v FCT (1969) 119 CLR 365; 1 ATR 3). Section 99A(3) of the ITAA 1936 sets out factors which the Commissioner can consider in deciding that it would be unreasonable for section 99A of the ITAA 1936 to apply. 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. On the facts provided, there is no suggestion that the trust has been created or maintained for the purpose of tax avoidance. Consequently, the Commissioner considers that it would be unreasonable for section 99A of the ITAA 1936 to apply to the deceased estate in the relevant income years. Accordingly section 99 of the ITAA 1936 will apply.