Private ruling: Whether any of the income of the X Trust should be included in your assessable income
Date of advice: 19 November 2018
Published: March 2019
Ruling period: Year ended 30 June 2018
Date scheme commenced: 01 July 2017

Ruling: Q1: Is any of the net income of the X Trust included in your assessable income? | A1: No

Relevant facts and circumstances: ● The trustee of the X Trust operates a retirement village, where you are a resident. ● As a lessee of a residential unit at the village, you are a beneficiary under the trust. ● Under the trust’s deed, you can become entitled to the assets of the trust in the following ways: ● if the trustee, after obtaining the necessary approvals, distributes surplus cash under clause Y; ● upon the vesting of the trust, under clause Z. ● In any case your entitlement would be pro rata with the other residents in accordance with the ‘unit entitlement’ allocated to the residential unit you lease. Each residential unit’s ‘unit entitlement’ is specified in the trust deed. ● No distribution of surplus has been made under clause Y of the trust deed. ● The assets of the trust, including accumulated income, are deployed in the operation of the retirement village. You benefit in an indirect sense from some of this expenditure because you are a resident of the retirement village, but none of the expenditure is specifically for your benefit. ● In September 2018 you received the 2018 Annual Tax Statement from the trustee. ● You lodged your tax return prior receiving the 2018 Annual Tax Statement from the trustee and no trust income was declared in your return.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 97(1)

Reasons for decision: Summary: In broad terms, Division 6 of Part III of the Income Tax Assessment Act 1936 (Cth) ( ‘ ITAA 1936’) determines who will be assessed for income tax purposes on parts of the net income of a trust and in what shares. Where a beneficiary is presently entitled to a share of the trust’s income, that beneficiary is assessable on a corresponding share of the trust’s net income: subsection 97(1) of the ITAA 1936. In the present case, the trust deed of the X Trust does not provide the trustee with any power to distribute trust income among the beneficiaries of the trust in those terms. That is, the trustee does not have the power to make a beneficiary presently entitled to income as such. Rather, the trustee’s power is limited to distributing surplus funds of the trust pursuant to a unanimous resolution of the Board of Management under clause Y of the deed. For this reason, the resolution expressed in terms of dealing with the net non-mutual income of the trust is ineffective to make you entitled to a share of the income of the trust. As such, you are not presently entitled to any share of income of the trust for the 2018 income year within the meaning of section 97 of the ITAA 1936, and no share of the corresponding net income of the trust for that year is included in your assessable income under Division 6.