Private ruling: Excepted Trust Income
Date of advice: 1 July 2016
Published: August 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Do the terms of the trust deed for the trust comply with the requirements in Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes. | Q2: Can money be "property" for the purposes of section 102AG(2) of the ITAA 1936? | A2: Yes. | Q3: Will the share of the income of the trust paid to any of the children while that child is a "prescribed person" for the purposes of Division 6AA will be "excepted trust income" for the purposes of section 102AG(2)(c)(v) of the ITAA 1936? | A3: Yes. | Q4: Does section 102AG(8) of the ITAA 1936 prevent the income derived by the trust from being "excepted trust income" for the purposes of section 102AG(2)(c)(v) of the ITAA 1936 to the extent it is paid to or expended on the maintenance, education or advancement of a child who is a "prescribed person"? | A4: No.

Relevant facts and circumstances: The deceased died on the XXXX. The Deceased's Will leaves their estate equally amongst their children (the Children). The Children are all under 18 years of age. As a result of the Deceased's death, superannuation death benefits are payable from the Superannuation Funds (the Funds). It is proposed that superannuation lump sum death benefits be paid from the Funds to the trustee of the Trust (the Trustee), The Trust Deed - provides that: • the Trustee may distribute net income to all the beneficiaries or to one or more of the beneficiaries; or distribute all or part of the net income for the advancement maintenance education support or benefit of the beneficiaries; • in exercising any discretion in favour of an infant beneficiary the Trustee may pay the amount to the guardian or other person who has the care or custody of a beneficiary, or to any parent of a beneficiary; • the Trustee may pay transfer apply or set aside the whole or any part of the Fund to all the beneficiaries in equal shares; or pay transfer apply or set aside for the advancement maintenance education support or benefit of the beneficiaries; and • the Trustee cannot revoke, delete, or vary all or any of the trusts, powers or provisions of the deed to vary the beneficial interest of any person in respect of the income of the Fund distributed to the person; or to appoint or remove any person as a beneficiary; The funds will be invested in arm's length investments.

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

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 beneficiaries of the trust are minors as they are all under 18 years of age. Therefore they are each 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. Assessable income that 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). In this case, the arrangement meets the requirements of subparagraph 102AG(2)(c)(v) and Division 6AA of the ITAA 1936. Therefore, the income would be excepted trust income. Section 102AA(1) of the ITAA 1936 states that property means property whether real or personal and includes money. Therefore, money can be "property" for the purposes of section 102AG(2) of the ITAA 1936. Subsection 102AG(8) of the ITAA 1936 provides that, for the purposes of section 102AG, where any property is transferred to the trustee and the trustee has a discretion to pay or apply the income derived from the property to or for the benefit of a specified beneficiary, the property is to be taken to have been transferred to the trustee for the benefit of each of those specified beneficiaries. Accordingly any money that is paid to or expended on the maintenance, education or advancement of a child who is a "prescribed person" is still considered excepted income.