Private ruling: Division 99A discretion
Date of advice: 18 January 2016
Published: March 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the Commissioner exercise the discretion under paragraph 99A(2)(a) of the Income Tax Assessment Act 1936 (ITAA 1936) to assess the Trust under section 99 instead of section 99A 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 Rates Act 1986 - Section 12

Reasons for decision: Summary: Section 99A of the ITAA 1936 will not apply to a trustee in an income year where the trust estate resulted from a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil if the Commissioner considers that it would be unreasonable to do so. Having regard to the factors in subsection 99A(3), the Commissioner considers that it would be unreasonable to apply section 99A in this case. The general practice is to assess the income of a deceased estate trust under section 99 of the ITAA 1936 unless there is tax avoidance involved. | Detailed Reasoning - Further issues for you to consider: The rates of tax for trustees assessed under section 99 of the ITAA 1936 are found in subsection 12(6) of the Income Tax Rates Act 1986 (ITRA 1986), which directs attention to Schedule 10 of the ITRA 1986. Part 1 of Schedule 10 of the ITRA 1986 identifies two classes of trustees for the purpose of determining the rates of tax that are to apply. In the first class are trustees who are liable to be assessed under section 99 of the ITAA 1936 in respect of resident trust estates of a deceased person where the income is derived in the year of death of the deceased or in any one of the following two years. These trustees are liable to pay tax at the rates applicable to resident individuals. The second class of trustees identified in Part 1 of Schedule 10 of the ITRA 1986 comprises trustees liable to be assessed under section 99 of the ITAA 1936 in respect of income of a resident trust estate, other than the estate of a person who died fewer than three years before the end of the income year. These trustees (including the trustees of testamentary trusts) are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold. There is no discretion available to the Commissioner to extend the three year period to apply the lower rates of tax or vary the rates of tax applicable under section 99 of the ITAA 1936.

Relevant facts: The deceased passed away in 20XX. | The Trust is a testamentary trust set up in accordance with the deceased's will and the residue of the deceased's estate was transferred to the Trust in 20XX. | The main beneficiary of the Trust is the child of deceased. | In 20XX, legal proceedings were commenced under the Family Provision legislation by a related party and these proceedings are still on foot. | As a result of the litigation, the Trust has been unable to distribute any of the Trust income.