Private ruling: Trust income - taxed at special rates - section 99A
Date of advice: 21 October 2016
Published: February 2017
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20YY | Year ending 30 June 20ZZ
Date scheme commenced: 1 July 20WW

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 trust is a discretionary testamentary trust (Trust). The trust was created over units held in a unit trust and shares held in publicly listed companies. All assets are held for investment purposes and for the sole benefit of the beneficiaries under the terms of the will. The trust deed states that the trustees can pay apply or set aside the trust income or any part or parts thereof to or for the benefit of the beneficiaries or any one of more of them exclusive of the other or others of them in such share or proportions and from such category or categories of income as the trustees in their absolute discretion shall think fit. The trustees may in their discretion accumulate any or all of the said income. The trustee now wishes to accumulate part of the income of the trust. The trust does not own shares in private companies.

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 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. Section 99A of the ITAA, 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 and the Commissioner considers that it would be unreasonable for section 99A of the ITAA 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. Section 99A(3) of the ITAA sets out factors which the Commissioner can consider in deciding that it would be unreasonable for section 99A of the ITAA 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. After consideration of these factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA should apply in relation to that trust estate for the relevant years. Accordingly section 99 of the ITAA will apply.