Private ruling: Commissioners discretion under section 99A
Date of advice: 11 August 2016
Published: September 2016
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax 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 in 2011. Probate was granted in 2012. The executors have been involved in a series of court cases to recover monies. These monies were owed to the deceased while she/he was still alive. Administration of the estate is incomplete and therefore there are no presently entitled beneficiaries.

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 Rates Act 1986 Subsection 12(6)

Reasons for decision: Summary: Section 99A of the ITAA 1936 will not apply to a trustee in an income year where the trust estate resulted from a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil if the Commissioner considers that it would be unreasonable to do so. Subsection 99A(2) of the ITAA 1936 reflects the policy that if it would be unreasonable for section 99A to apply to income of a deceased estate to which the beneficiaries are prevented from being presently entitled because the administration of a deceased estate has not been finalised, then section 99 applies The rates of tax for trustees assessed under section 99 of the ITAA 1936 are found in subsection 12(6) of the Income Tax Rates Act 1986 (ITRA 1986), which directs attention to Schedule 10 of the ITRA 1986. Part 1 of Schedule 10 of the ITRA 1986 identifies two classes of trustees for the purpose of determining the rates of tax that are to apply. In the first class are trustees who are liable to be assessed under section 99 of the ITAA 1936 in respect of resident trust estates of a deceased person where the income is derived in the year of death of the deceased or in any one of the following two years. These trustees are liable to pay tax at the rates applicable to resident individuals. The second class of trustees identified in Part 1 of Schedule 10 of the ITRA 1986 comprises trustees liable to be assessed under section 99 of the ITAA 1936 in respect of income of a resident trust estate, other than the estate of a person who died fewer than three years before the end of the income year. These trustees (including the trustees of testamentary trusts) are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold. There is no discretion available to the Commissioner to extend the three year period to apply the lower rates of tax or vary the rates of tax applicable under section 99 of the ITAA 1936. The trust assessment code to be assessed under section 99 of the ITAA 1936 is 15 for the estate of a person who died fewer than three years before the end of the income year and code 16 for the estate of a person who died more than three years before the end of the income year. Application to your circumstances In your circumstances it would be considered unreasonable for the income of the deceased estate trust to be assessed under section 99A of the ITAA 1936, therefore will be assessed under section 99 of the ITAA 1936. As per the ITRA 1986, when determining the tax rates that will apply, code 16 will apply for the estate as the deceased died more than three years before the end of the income year. There is no discretion available for the Commissioner to vary the rates of tax applicable.