Private ruling: Excepted income
Date of advice: 13 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the interest derived from the investment of the proceeds from the deceased's superannuation fund excepted trust income for the purposes of subparagraph 102AG(2)(c)(v) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes.

Relevant facts and circumstances: The deceased died in 2010. The deceased was a member of a super fund. An amount was payable in relation to the deceased member from the Fund. The relevant Deed stated that the funds were to be held on trust for the deceased's child until they reach the age of 18 years. The Trust Deed for the relevant Trust provides that the income may be payed towards the maintenance, education or benefit in anyway whatsoever in such manner as the Trustee thinks fit. Further the Trust Deed provided that when the beneficiary reaches the age of 18, the Trustee shall hold the Trust Fund for the Beneficiary absolutely provided that if the Beneficiary dies before reaching the age of 18 then the Trustee shall hold the Trust Fund for the estate of the Beneficiary. The beneficiary is under 18 years of age. The funds have been placed into a bank account and the income earned by the trust is interest. The income has been retained in the trust.

Relevant legislative provisions: Income Tax Assessment Act 1936 of the Division 6AA | Income Tax Assessment Act 1936 of the Section 102AC(2) | Income Tax Assessment Act 1936 of the Section 102AG | Income Tax Assessment Act 1936 of the Subsection 102AG(2)

Reasons for decision: Summary: Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) ensures that special rates of tax and a lower tax free threshold apply in working out the basic income tax liability on taxable income, other than excepted income, derived by a prescribed person. A prescribed person is defined in subsection 102AC(1) of the ITAA 1936 to include any person, other than an excepted person (as defined in subsection 102AC(2) of the ITAA 1936), who is under 18 years of age on the last day of the income year. In this case, the beneficiary of the trust is a minor as they are under 18 years of age. Therefore they are considered to be a prescribed person for the purposes of subsection 102AC(1) of the ITAA 1936. Where the beneficiary of a trust is a prescribed person, Division 6AA of the ITAA 1936 will apply to so much of the beneficiary's share of the net income of the trust that is not excepted trust income (subsection 102AG(1) of the ITAA 1936). Subsection 102AG(2) of the ITAA 1936 lists the various types of income of a trust estate which are excepted trust income in relation to the beneficiary of the trust estate. This includes assessable income that is derived by the trustee of the trust estate from the investment of any property transferred to the trustee for the benefit of the beneficiary directly as the result of the death of a person and out of a provident, benefit, superannuation or retirement fund (subparagraph 102AG(2)(c)(v) of the ITAA 1936). Consequently, the interest derived from the investment of the proceeds from the deceased's superannuation fund is excepted trust income for the purposes of subparagraph 102AG(2)(c)(v) of the ITAA 1936. If this interest is retained in the trust and reinvested, the income derived from the reinvested interest amounts will also be excepted trust income (subparagraph 102AG(2)(e)(i) of the ITAA 1936).