Private ruling: Commissioner's discretion - subsection 99A(2)
Date of advice: 12 September 2025
Published: 17 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 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 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)(i) | 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) | Income Tax Assessment Act 1936 paragraph 102AG(2)(c)

Reasons for decision: Summary: After consideration of the relevant factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA 1936 should apply in relation to Trust X in relation to the income year ended 30 June 20XX. Therefore, the Commissioner will exercise the discretion, under subsection 99A(2) of the ITAA 1936 to allow section 99 to apply where Trustee A of Trust X are liable to pay tax on income to which no beneficiary is presently entitled for income year ended 30 June 20XX. | Detailed Reasoning - Detailed reasoning: The relevant legislation Under subsection 99A(2) of the ITAA 1936, 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 of the ITAA 1936 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) of the ITAA 1936. 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) of the ITAA 1936 and include a trust estate that resulted from a will (paragraph 99A(2)(a)). In forming the opinion for the purposes of subsection 99A(2) of the ITAA 1936 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 (v) 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. Application of the legislation to the facts Trust X was created under the terms of the Will of the Deceased (dated XX December 20XX) and is considered to be a 'trust estate ... that resulted from a will' for the purposes of subparagraph 99A(2)(a)(i) of the ITAA 1936 (Clause X of the Will). Trustee A have had, and will have, retained net income in respect of the income year throughout Administrative Discretion Period. This net income will fall to be assessed to the Trustees under section 99A of the ITAA 1936 unless, '... 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.' (subsection 99A(2)) In forming the opinion for the purposes of subsection 99A(2) of the ITAA 1936 the Commissioner is required to have regard to the matters in subsection 99A(3) and 99A(3A). Consideration of paragraphs 99A(3)(a) and (b) of the ITAA 1936 You have advised that: - cash vested in her from the Deceased estate and under the Will; - publicly listed assets including managed funds, shares and fixed interest securities; and - interests earned from holding those assets. - investments in any private companies or private trusts; - other assets acquired at non-arm's length value; or - loans provided to related parties. Consideration of paragraph 99A(3)(c) of the ITAA 1936 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: Trustee A has not, and will not, use her powers under the Trust to avoid tax. 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, Trustee A has exercised her powers under the Trust in a conventional manner (and not as a tax-avoidance device). The Trust's assets consist of cash vested from the Deceased's estate, and Trust X is being administered by Trustee A in a conventional manner. Trust X is not a trust of the type that is relevant to this matter. Trust X is not a trust of the type that is relevant to this matter. | Detailed Reasoning - 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) of the ITAA 1936 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 - and the manner in which the arrangement is administered. In relation to these 'surrounding circumstances' it is noted that: - Trust X is a testamentary trust that resulted from the Will of the Deceased dated XX December 20XX. - Trust X has been established in accordance with Clause X of the Will and will be administered by Trustee A in the manner set out in that clause. | Detailed Reasoning - Conclusion as to whether it is unreasonable for section 99A of the ITAA 1936 to apply to Trust X in respect of the income year ended 30 June 20XX: The matters that are considered to be particularly relevant to forming the opinion for the purposes of subsection 99A(2) of the ITAA 1936 are: • Trust X resulted from a will and satisfies the requirement of paragraph 99A(2)(a). • In the income year ending 30 June 20XX: - Trustee A has retained an amount of trust income. - Tax has not been avoided by the exercise of the powers available to Trustee A under the Will. - Trust X has been administered in a conventional manner by the Trustee and not as a tax avoidance device. - Trustee A 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 Trustee A consist of: - The assets held by Trustee A will not consist of: - Trustee A will not avoid tax by exercising the powers available to them under the terms of the Trust Deed. Having regard to the above matters, and the legislated purpose of section 99A of the ITAA 1936 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 income year ended 30 June 20XX.

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: | The email from the ATO to Tax Representative dated XX August 20XX requesting additional information (FIR). | Tax Representative responded to the FIR, including attachments (FIR Response) on XX August 20XX. | The Deceased died on X February 20XX. | The Last Will and Testament of the Deceased (the Will) was dated XX December 20XX. | The Deceased was an Australian resident for tax purposes. | Under the terms of the Will, two testamentary trusts were established for the beneficiaries. Each testamentary trust was due to receive one half of the residual assets of the deceased estate. | Trust X was established under Clause X of the Will in the income year ended 30 June 20XX. | One half of the residual of the Deceased's estate was deposited into Trust X in August 20XX (once probate was granted and life insurance payments had been made to the estate). The residual assets distributed to the Trust X was cash only. | Trustee A is the trustee of Trust X. | Trust X and the beneficiaries of Trust X are residents of Australia for tax purposes. | Beneficiary B is the primary beneficiary of the Trust X. | The Trust Deed has not been amended. | Trust income tax returns have been lodged by Trustee A for income year ended 30 June 20XX to 30 June 20XX. For income year ended 30 June 20XX, it was submitted as return not necessary. | Your FIR Response confirmed the following facts: | (i) assets vested in her (that was vested in the Executor of the Will and listed in the Inventory of Property annexed to the Grant of Probate document) under the terms of the Last Will and Testament of the Deceased; | (ii) asset/s that represents accumulations of income or capital from asset/s that satisfies the requirement in (i); | (iii) from the sale of these assets; and | (iv) asset/s from the re-investment of asset/s that satisfies the requirement in (iii). | • During the income year ended 30 June 20XX, the property held by Trustee A consist only of: | • The property held by Trustee A does not consist of: | • No person, at any time, transfer or lend any property (including money) to the Trust X. | • No Unpaid Present Entitlements (UPEs) exist in Trust X. | Further, in respect of income year ended 30 June 20XX: | • The trust income is $XX,XXX; | • The trust's net income is $XX,XXX; | • The trust income (and net income) that has been distributed to beneficiaries is nil; and | • The trust income (and net income) that has been retained/accumulated by Trustee A is $XX,XXX (after tax $XX,XXX). | The assets held by Trustee A do not consist of: | The Revenue should be protected against tax avoiding devices: | The interests of taxpayers generally should be protected: | The right of the subject to make legitimate and reasonable arrangements relating to family and business matters should be protected: | Arrangements which are for the good of the public generally should not be discouraged: | Trusts which arise out of the exercise of a public duty should not be penalised: | assets vested in her (as Trustee) under the terms of the Last Will and Testament of the Deceased; | cash earned from holding these assets; and | shares in any private companies or units in any private trusts;