Private ruling: Trust - deceased estate - Commissioner's discretion under section 99A
Date of advice: 9 November 2017
Published: April 2018
Ruling period: Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise his discretion not to apply the provisions of section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) and assess the trust estate under section 99 of the ITAA 1936? | A1: Yes


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)

Reasons for decision: Summary: Sections 99 and 99A of the ITAA 1936 apply to assess the trustee on income to which no beneficiary is presently entitled, which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A. Section 99A applies in relation to all trusts unless: ● the trust is a deceased estate; subparagraph 99A(2)(a)(i) and (ii) ● the trust is bankrupt estate; paragraphs 99A(2)(b) and (c) ● the trust is a trust that consists of property referred to in paragraph 102AG(2)(c) and the Commissioner forms the opinion that it would be unreasonable to apply section 99A in such circumstances. Subsection 99A(2) of the ITAA 1936 outlines the circumstances when the Commissioner may apply his discretion for section 99A not to apply. The relevant part of subsection 99A(2) states that the discretion may be exercised where a 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. The discretion is exercised where the Commissioner is of the opinion that it would be unreasonable for section 99A to apply. Consequently, the favourable exercise of the Commissioner's discretion under subsection 99A(2) means the highest rate of income tax does not apply to trust estates resulting from a will, codicil, etc. These include both the estate of a deceased person and 'testamentary' trusts established pursuant to the terms of a will. If no part of the net income is distributed to beneficiaries, and section 99A is considered not to apply, then the trustee is assessed under section 99 of the ITAA 1936. In forming an opinion pursuant to section 99A(2) whether it would be unreasonable for section 99A to apply to a particular trust estate in relation to a particular year of income, the Commissioner is directed by subsection 99A(3) to have regard to certain matters. It specifies the matters to be considered to include: ● the manner and price at which the trust acquired its assets ● whether any special rights or privileges are attached to, or conferred on or in relation to, the trust property, and ● such other matters as the Commissioner thinks fit. These matters look at the source of the trust capital, including whether any loans have been made to the trust. The source(s) of the trusts income are also considered, as are any benefits conferred upon the trust, and any rights and privileges conferred on or attached to property held by the trust. In determining the weight to be given to the matters described in subsection 99A(3) , Windeyer J has stated in Giris Pty Ltd v FCT (1969) 119 CLR 365; 69 ATC 4015; (1969) 1 ATR 3 that: The Commissioner is to ask himself whether it would be unreasonable that section 99A of the ITAA should apply to any particular trust estate …. That purpose I take it is to enable the Commissioner to keep sec 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. In these circumstances, the trust is a deceased estate satisfying the eligibility for the Commissioner’s discretion. The assets come directly from the assets of the deceased and there is a definable relationship ordinarily of blood or marriage between the deceased person and the beneficiaries. There are no other suggestions that the manner in which the trust was created was for any reason other than the ordinary and traditional kind. Therefore it would be reasonable for the Commissioner to apply his discretion to allow section 99 of the ITAA 1936 to apply.

Relevant facts and circumstances | The deceased died intestate on XX June 20XX. | Administration of the estate has been delayed due to family conflict. | The Letters of Administration have been granted. In the absence of a will, the distribution of the estate to beneficiaries was determined under the relevant act. | The deceased’s estate includes XXXX shares in a company (the company) with estimated value of $X per share. | The company is a private company which was run by the deceased and their spouse prior to their death. | Apart from the shares in the company, there are minimal other assets and minimal income in the estate. | The estate had income of $X in the 20XX-XX financial year and there is an expectation that income will be at a similar level for the 20XX-XX financial year. | It is anticipated that the estate will be fully administered in the 20XX-XX financial year, with the final estate income tax return being lodged in the 20XX-XX year.