Private ruling: Present entitlement
Published: December 2011
Ruling period: 1 July 2009 to 30 June 2010
Date scheme commenced: 1 July 2009

Ruling: Q1: In passing the resolution has the trustee under section 101 if the Income Tax Assessment Act 1936 (ITAA 1936) deemed the beneficiary to be presently entitled to that distribution? | A1: Yes.

Relevant facts and circumstances: The rulee is a discretionary trust. The rulee derives income from investments. A resolution was passed early in the financial year to distribute some money to a beneficiary. The beneficiary passed away a short while after. The applicant confirmed that the rulee had funds available in excess of the distribution amount at the time the resolution was passed.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 101

Reasons for decision: Summary: There is no definition of the term presently entitled in the Income Tax Assessment Act 1936 (ITAA 1936) or the Income Tax Assessment Act 1997 (ITAA 1997). It is therefore necessary to establish the meaning which has been given to the term by the court. At the heart of the concept of present entitlement lies the immediate present right of a beneficiary to demand and receive payment of the income of the trust estate or a share of it. The leading High Court decision in Harmer & Ors v FC of T 91 ATC 5000 ( Harmer ), expressed the tests as follows: o the beneficiary has an interest in the income which is both vested in interest and vested in possession; and o the beneficiary must have an indefeasible, absolutely vested, beneficial interest in possession in the trust income. That is, the interest must not be contingent which means that the beneficiary must have the right to demand immediate payment. In this case the applicant confirmed that the rulee had funds available in excess of the distribution amount at the time the resolution was passed meaning that the beneficiary could receive payment immediately the beneficiary demanded it Additionally, section 101 of ITAA 1936 also provides that where a trustee has a discretion to pay or apply income of a trust estate to or for the benefit of specified beneficiaries, a beneficiary in whose favour the trustee exercises the trustee's discretion shall be deemed to be presently entitled to the amount paid to the beneficiary or applied for the beneficiary's benefit by the trustee in the exercise of that discretion. The beneficiary's present entitlement was taken to be effective on the date when the trustee exercised their discretion to pass the resolution.

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