Private ruling: Commissioner's discretion
Date of advice: 6 October 2025
Published: 24 November 2025
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion under subsection 99A(2) of the 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: This administrative discretion request is based on the facts and circumstances set out below. This description of facts is based on the following documents. The documents form part of and are to be read with this description. The relevant documents are: • Request for a private ruling, dated XXXX. • Requests from the ATO for further information, dated XXXX and XXXX. • Electronic responses to the request from the ATO for further information, dated XXXX, XXXX and XXXX, including various attached documents. The person A testamentary trust (the Trust) was brought into existence by its trustee, XX (the Trustee), a financial services provider specialising in 'family office' services. Via the law firm XX (the Law Firm), the Trustee was engaged by Person B, the surviving parent of the Trust's sole beneficiary, Person A (the Beneficiary), aged X. The Beneficiary's deceased parent, former Australian resident and Australian citizen by birth, the late Person C (the Deceased), died intestate. As the Deceased was domiciled in XX at the time of their death, the XX laws of intestacy applied to their deceased estate (the Administration). The XX intestacy laws dictated the following division in the allocation of the Deceased's assets: • 50 percent to the Deceased's spouse • 25 percent to the Beneficiary, and • 25 percent to the Beneficiary's sibling. The vast majority of the Administration's assets was in the form of life insurance policy proceeds which were paid to the Administration as the Deceased had not nominated any beneficiary for the policy. In the absence of a Will, the Law Firm was approached to apply to the Supreme Court of the Australian State in which the Deceased was last domiciled - XX - for a grant of Letters of Administration. As part of that application, the Law Firm gathered, inter alia, affidavits in which: • the Deceased's parent recounted a verbal exchange in which the Deceased articulated a desire to make a Will that would see 'money ... invested to provide financial security for the family and the education of the children' and • the Deceased's spouse stated: 'We understood that in the event that one of us died, the survivor would share the deceased's estate with our children in equal shares'. The grant of the Letters of Administration to XX (the Administrator) contained no specific detail related to the implicit need to bring into existence an estate proceeds trust, and there are no accompanying Court Orders that provided direction about any terms of the estate proceeds trust that was brought into existence in the form of the Trust. The Administrator proceeded to bring into existence the Trust, the corpus of which was 25 percent of the Administration's assets, in accordance with the XX intestacy laws and because the Beneficiary was not in a position to give 'good receipt' for a distribution of their share of the Administration due to their age. In the absence of other documentation, the Trustee asserts that their power to establish the Trust without executing a Trust Deed or other instrument emanates from Division X of the XX Act XXXX. The governance of the Trust is driven by: • Division X of the XX Act XXXX; • the Trustee's fiduciary duty to properly invest accumulated income for the Beneficiary's best interests, and, where appropriate, apply accumulated income for the Beneficiary's maintenance, advancement, and education; • the Trustee's own self-governance rules and guidelines and those that apply to the financial services provider industry; and • honouring the purported wishes of the Deceased, which included a desire for the accumulated income and the corpus of the Trust to be applied where deemed fit in the maintenance of the Beneficiary's education and financial security. Again, in respect of the Trust, there is no deed or any other instrument in existence. Whilst the Trustee would keep internal documentation about how the Trust is managed, none has been shared for the purposes of this application. The Beneficiary is a non-resident of Australia for taxation purposes for the entire period to which this ruling applies. In terms of the Beneficiary's interest in the accumulated income and corpus of the trust: • There will be no vesting of the Trust assets until the Beneficiary reaches the age of 18. • In the event that the Beneficiary does not reach the age of 18: - the Trust assets will devolve to any child of theirs, or - in the absence of children, the Trust assets would be distributed to the Beneficiary's sibling, or - were the Beneficiary's sibling to have predeceased the Beneficiary at the time of the Beneficiary's death before reaching the age of 18, the Trust assets would be distributed to the Beneficiary's surviving parent. For the income years ended 30 June 20XX and 30 June 20XX, the Trust's accumulated income includes: • interest • managed fund distributions, and • capital gains from disposal of investments. The income producing Trust assets are expected to remain of the same type in prospective years, however, there is a possibility that dividend income is received in future years if the trustee invests in shares. For the income years ended 30 June 20XX and 30 June 20XX, the Trust has derived both Australian-sourced income and foreign-sourced income from investments held in managed funds. Prospectively, the source of income received from investments held in managed funds is expected to continue to be a mix of Australian and foreign-sourced income. For the income years ended 30 June 20XX and 30 June 20XX, income was accumulated in the Trust. Some income was applied for the Beneficiary in the form of education expenses. This type of application of accumulated income is expected to continue prospectively. The Trust has not borrowed any funds. Assumptions Throughout the Ruling period: a) There will be no amendment of, or variation to, the terms under which XX manages the Trust, including but not limited to: (i) the identity of the Trustee; (ii) the identity and rights of the Beneficiary; (iii) the manner in which the Trustee exercises powers under Division X of the XX Act XXXX; (iv) the Trustee's fiduciary duty to properly invest accumulated income for the Beneficiary's best interests, and, where appropriate, apply accumulated income for the Beneficiary's maintenance, advancement, and education; (v) the Trustee's own self-governance rules and guidelines and those that apply to the financial services provider industry; and (vi) honouring the purported wishes of the Deceased, which included a desire for the accumulated income and the corpus of the Trust to be applied where deemed fit in the maintenance of the Beneficiary's education and financial security. b) The property of the Trust will consist only of: (i) property vested in the Trustee (that was previously vested in the Administrator in accordance with the Grant of Letters of Administration on XXXX); (ii) property that represents accumulations of income or capital from property that satisfies the requirement in (i); (iii) property from the sale or conversion of these assets of the Trust; and (iv) property from the re-investment of property that satisfies the requirement in (iii). c) The income of the Trust will only relate to the property described in (b), above, and will not relate to being the discretionary object of another trust, where the income relates to the exercise, or non-exercise, of a distributary power of the trustee of the other trust. d) The Trustee will administer the Trust in a conventional manner and not as a tax avoidance device. e) The Trustee will not enter into arrangements beyond the purpose for which section 99 of the ITAA 1936 was retained or of a type that the Commissioner will seek to discourage.

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 Assessment Act 1936 paragraph 99A(2)(a) | Income Tax Assessment Act 1936 subparagraph 99A(2)(a)(ii) | Income Tax Assessment Act 1936 subsection 99A(3) | Income Tax Assessment Act 1936 paragraph 99A(3)(a) | Income Tax Assessment Act 1936 paragraph 99A(3)(b) | Income Tax Assessment Act 1936 paragraph 99A(3)(c) | Income Tax Assessment Act 1936 subsection 99A(3A) Anti-avoidance rules | Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select 'Part IVA: the general anti-avoidance rule for income tax'.

Reasons for decision: Summary: Subsection 98(1) applies to assess a trustee on a beneficiary's share of income where a beneficiary is presently entitled and is under a legal disability. Where no beneficiary is presently entitled in the relevant year of income, the trustee taxpayer is liable to be assessed under section 99A, unless the Commissioner is of the opinion that it would be unreasonable that section 99A should apply and that section 99 should apply instead. | Detailed Reasoning - Present entitlement: A beneficiary is presently entitled to the net income of the trust where that beneficiary has an absolute and indefeasible vested interest in the trust income ( Taylor v. FC of T (1970)119 CLR 444; 70 ATC 4026; (1970) 1 ATR 582 ( Taylor's case )). In Taylor's Case , it was held that a beneficiary under a legal disability has an absolute and indefeasible vested interest in the trust income, where the terms of trust specify that the accumulated income of the trust is held for the beneficiary until the beneficiary ceases to be a minor or, if the beneficiary dies earlier, for their estate. However, where the terms of the trust provide for the income to go to another person in the event of the beneficiary's death before the beneficiary attains age of majority, the beneficiary is not presently entitled as the beneficiary's interest is considered contingent, and therefore defeasible. Taxation Ruling IT 319 - Presently entitled: The effect of the decision in Taylor v FC of T [(1969) 123 CLR 206] upon the interpretation of the phrase presently entitled in section 98 states at paragraph 4 that, '[the Taylor's Case ] decision should be applied only in cases where the facts are substantially the same'. In this case, if the Beneficiary does not reach 18 years of age, their interest will be distributed to either their sibling or their surviving parent, not their estate. This contingency distinguishes the Facts from those in Taylor's Case , and the Beneficiary's interest is, therefore, considered defeasible. Accordingly, for the period to which this ruling applies, the Trustee is liable to be assessed under section 99A, unless the Commissioner is of the opinion that it would be unreasonable that section 99A should apply and that section 99 should apply instead. | Detailed Reasoning - Qualifying for consideration of the discretion under subsection 99A(2): Under subsection 99A(2), section 99A will not apply to the net income of a resident trust estate retained by certain trust estates where the '... Commissioner is of the opinion that it would be unreasonable that this section should apply in relation to that trust estate in relation to that year of income...'. Instead, section 99 will apply to that net income such that the net income of the trust will be taxed at the progressive rates applicable to certain individuals rather than at the flat top marginal tax rate (although, the availability of the tax-free threshold is only available to trustees of trusts where the relevant person died less than 3 years before the end of the relevant year of income). In exercising the discretion, the Commissioner will have reference to the text of the legislation itself, the intent or purpose of the legislation and relevant case law as they apply to the facts and circumstances of a particular case for the purpose of forming the required opinion under subsection 99A(2). The types of trust estate in respect of which the Commissioner's discretion may be exercised are listed in paragraphs 99A(2)(a) to (d) and include a trust estate that resulted from an intestacy (subparagraph 99A(2)(b)(ii)). In this case, the Trust was brought into existence because the Beneficiary was not in a position to give 'good receipt' for a distribution of their share of the Deceased's estate due to their age. Accordingly, despite their being no instructions to directly create the Trust (because of the intestacy and the absence of instructional Court Orders or material in the Letters of Administration), the Trust can be said to have 'resulted' from an intestacy. | Detailed Reasoning - Forming an opinion for the purposes of subsection 99A(2): In forming the opinion for the purposes of subsection 99A(2), the Commissioner is required to have regard to the matter subsections 99A(3) and (3A). These provide: 99A(3) 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. 99A(3A) For the purposes of the application of paragraph (3)(a) in relation to a trust estate of the kind referred to in paragraph (2)(a), a reference in that first-mentioned paragraph to the trust estate shall be read as including a reference to the person as a result of whose death the trust estate arose. Purpose of section 99A of the ITAA 1936 Section 99A of the ITAA 1936 was introduced by the Income Tax and Social Services Contribution Assessment Act (No. 3) 1964 . In its original form, it did not apply to deceased estates. When section 99A of the ITAA 1936 was amended in 1979 to apply to deceased estates, the EM to the Income Tax Assessment Amendment Bill (No. 6) 1979 stated (in relation to the exercise of the discretion in subsection 99A(2)): The criteria that the Commissioner is to use in considering whether it would be unreasonable that section 99A of the ITAA 1936 should apply in these cases will remain essentially the same as at present (sub-section 99A(3)). This will enable the result that, unless there are tax avoidance connotations , accumulating income in these cases will continue to be taxed under section 99, on the same basis as at present. (Because there had been tax avoidance exploitation of an earlier exclusion of deceased estates from the ambit of section 99A, those estates were, by section 6 of the Income Tax Assessment Amendment Act (No. 2) 1977 , in that year brought within its scope.) [Note to Clause 13] [ Emphasis added ] In the High Court case of Giris Pty. Ltd. V. Federal Commissioner Of Taxation ( Giris ) Windeyer J described the purpose of section 99A of the ITAA 1936 as: That purpose I take it is to enable the Commissioner to keep s. 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. [at 384] This view was confirmed by Stephen J in the High Court case of Perron (as trustee for the L.M. Brennan Trust) v. Federal Commissioner of Taxation : The views of Windeyer J. in the Giris case regarding the legislative purpose given effect to by sec . 99A(2) have already been quoted in the Commissioner's letter. I would, with respect, adopt those views of that legislative purpose. [at 4171] Therefore, it is reasonable to conclude that the purpose of section 99A of the ITAA 1936 is to prevent the use of trusts to avoid tax. The language of the text contained in section 99A of the ITAA 1936, and case law, confirms that the type of tax avoidance at which section 99A is directed is broader than that facilitated by the use of multiple trusts. In Giris , the High court commented that: • '... the discretion is wide and though being really legislative in nature, what is relevant to its formation may range over an extremely wide spectrum of fact and consideration ...' [per Barwick J., at 374] • 'Here the Commissioner's discretion is apparently at large... I assume that [the Commissioner] is to be guided and controlled by the policy and purpose of the enactment, so far as that is manifest in it. ... ' [Per Windeyer J., at 384] ATO Guidance Public Information Bulletin PIB No. 4: Income of a trust estate to which no beneficiary is presently entitled was published by the ATO in April 1965. Although PIB No. 4 is relevant when considering the way in which the Commissioner considers the exercise of the discretion in subsection 99A(2) of the ITAA 1936, its relevance is diminished due to events subsequent to its issue such as: • Legislative amendments to section 99A; and • Court and Board of Review decisions on s 99A(2). For instance, the Commissioner is required to consider the matters in subsections 99(3) and 99(3A) of the ITAA 1936 in forming his opinion for the purposes of the discretion in subsection 99A(2). It is noted that subsection 99(3A) was inserted into the ITAA 1936 in 1980. Consideration of paragraphs 99A(3)(a) and (b) Assets held by the Trustee consist only of cash at bank and managed fund investments and those assets are made up of: • property that represents accumulations of income or capital from property that satisfies the requirement in (i) • property from the sale of these assets, and • property from the re-investment of property that satisfies the requirement in (iii). In addition, the assets held by the Trustee do not consist of: • investments in any private companies or private trusts • other assets acquired at non-arm's length value or • loans related to related parties. No property has been transferred or lent to the Trust, nor any specifical rights, privileges or benefits conferred upon the Trust. Consideration of paragraph 99A(3)(c) In the current circumstances the 'other matters' that are considered to be relevant for the purposes of forming an opinion for the purposes of subsection 99A(2) are encapsulated by the matters enunciated by Member Thompson in Case A50 (69 ATC 288). Broadly, these matters involve the Commissioner having regard to the objects of the section in protecting, on the one hand, the revenue against tax avoiding devices and the interests of taxpayers generally in the equal distribution of the tax burden and, on the other hand, the right of the subject to make legitimate and reasonable family and business arrangements. Each of these matters will be considered in turn: | Detailed Reasoning - The Revenue should be protected against tax avoiding devices:: Based on the information available, the Trustee has not used its powers under to avoid tax. | Detailed Reasoning - The interests of taxpayers generally should be protected:: In considering the exercise of the discretion in subsection 99A(2) the Commissioner will consider whether the type of arrangement under consideration may cause the tax burden to fall unevenly on taxpayers. The discretion is to be exercised in way that will discourage arrangements that would otherwise result in tax avoidance. In this case, the Trust has exercised its powers a conventional manner (and not as a tax-avoidance device). | Detailed Reasoning - The right of the subject to make legitimate and reasonable arrangements relating to family and business matters should be protected:: The Trustee, a financial services provider specialising in 'family office' services, was engaged by the Deceased's spouse because the Beneficiary was not in a position to give 'good receipt' for a distribution of their share of the Deceased's estate due to their age. The arrangements the Trustee has made to effect the purported wishes of the Deceased appear to be legitimate and reasonable. | Detailed Reasoning - Arrangements which are for the good of the public generally should not be discouraged:: The Trust is not a trust of the type that is relevant to this consideration. | Detailed Reasoning - Trusts which arise out of the exercise of a public duty should not be penalised:: The Trust is not a trust of the type that is relevant to this consideration. Surrounding circumstances to also be considered In Case A50 Thompson suggested that [at 302 and 303], in the process of forming an opinion for the purposes of subsection 99A(2) the Commissioner should undertake, '[a] wide survey and close scrutiny of all the surrounding circumstances, including, but not by any means limited to' [emphasis added]: • an examination of the terms of any relevant instrument • the manner in which those terms have been or are capable of being implemented • the circumstances under which the trust is called into being • the overall effect achieved or sought to be achieved upon the tax affairs of all parties directly or indirectly affected by the trust, and • the manner in which the arrangement is administered. In relation to these 'surrounding circumstances' it is again noted that the circumstances in this case support a favourable exercise of the Commissioner's discretion: • the Deceased died intestate, therefore there was no formal encapsulation of their wishes • the XX intestacy laws dictated that 25 percent of the Administration be distributed to the Beneficiary • the Beneficiary was not in a position to give 'good receipt' for their distribution due to their age • affidavits featured in the application for Letters of Administration provide indicators of the overall effect sought to be achieved through the establishment of the Trust: - the Deceased's parent recounted a verbal exchange in which the Deceased articulated a desire to make a Will that would see 'money ... invested to provide financial security for the family and the education of the children' and - the Deceased's spouse stated: 'We understood that in the event that one of us died, the survivor would share the deceased's estate with our children in equal shares' | Detailed Reasoning - Conclusion as to whether it is unreasonable for section 99A to apply to the Trust for the period covered by this ruling: The matters that are considered to be particularly relevant to forming the opinion for the purposes of subsection 99A(2) are: • The Trust resulted from an intestacy and satisfies the requirement of paragraph 99A(2)(a)(ii). • For the 2024 and 2025 income years: - the Trustee has retained trust income. - tax has not been avoided by the exercise of the powers available to the Trustee. - the Trust has been administered in a conventional manner by the Trustee and not as a tax avoidance device. - the Trustee has not entered into arrangements beyond the purpose for which section 99 was retained in the ITAA 1936 of a type that the Commissioner will seek to discourage. - the assets held by the Trustee consist of: o assets vested in the Trustee and/or o property from the sale of the assets of the Administration that has been reinvested or held as cash. - The assets held by the Trustee do not consist of: o investments in any private companies or private trusts; o other assets acquired at non-arm's length value; or o loans provided to related parties. • These conditions are expected to prevail throughout the prospective period from 1 July 2025 to 30 June 2028 due to the inclusion of the Assumptions. Having regard to the above matters, and the legislated purpose of section 99A to prevent the use of trusts for tax avoidance, the Commissioner is of the opinion that it is unreasonable for section 99A to apply to the Trust in respect of the period to which this ruling applies.

Reasons for decision: All references are to the ITAA 1936 unless otherwise stated.