Private ruling: Commissioner's discretion
Date of advice: 9 November 2016
Published: March 2017
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise his discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA) to tax the trustee on income that no beneficiary is presently entitled to under section 99 of the ITAA? | A1: Yes

Relevant facts and circumstances: The trust is a testamentary trust created by will. Under the terms of the will, there are two classes of beneficiaries. One class (Class A) is entitled to the income of the trust for the balance of their lifetime but not the capital. The residuary beneficiaries are entitled to the capital proceeds of the trust on the death of the Class A beneficiary. Upon creation of the trust the only assets held by the trust were those from the deceased estate. Any further assets purchased were done so using the capital from the deceased estate. No further capital has been introduced or contributed to the trust. Each year, all the trust's income as generated by the assets of the trust is fully distributed to the Class A beneficiary. The trustees of the Trust have caused a small capital gain to be realised within the Trust to which no beneficiary is presently entitled.

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 operate to tax trustees if there is part of the net income of a trust estate that is not taxed to a beneficiary under section 97 or the ITAA or to the trustee under section 98 of the ITAA. Section 99A of the ITAA, which imposes a higher rate of tax, applies automatically unless the trust estate is of a type specified in section 99A(2) of the ITAA and the Commissioner considers that it would be unreasonable for section 99A of the ITAA to apply. A trust estate that results from a will or intestacy is a type of trust estate in respect of which the Commissioner may form an opinion it would be unreasonable for the section to apply. Section 99A(3) of the ITAA sets out factors which the Commissioner can consider in deciding that it would be unreasonable for section 99A of the ITAA to apply. 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. After consideration of these factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA should apply in relation to that trust estate in relation to the relevant year of income. Accordingly section 99 of the ITAA will apply.