Private ruling: Assessable income
Published: March 2015
Ruling period: Year ended 30 June 2015 - year ended 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise his discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the estate under section 99 of the ITAA 1936? | A1: Yes.

Relevant facts and circumstances: The deceased passed away. The Estate currently consists of a collection of managed funds and some capital funds being held in the Estate bank account. The will provided a life interest to one of the beneficiaries. The residuary of the estate is divided into several equal parts. Any income earned after costs have been deducted is passed on to the income beneficiary. Assets have been acquired after the deceased passed away, however no money has been injected into the estate.

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 1936 apply to assess a trustee on income to which no beneficiary is presently entitled or income which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A of the ITAA 1936. Section 99A applies in relation to all trusts unless: • the trust resulted from a will; subparagraph 99A(2)(a)(i) • 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. Having regards to the circumstances the Commissioner will exercise the discretion to assess the income of the trust in accordance with section 99 of the ITAA 1936.