Private ruling: Whether any beneficiary is presently entitled to any part of the net income of the X Trust
Date of advice: 3 November 2017
Published: April 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Is any beneficiary presently entitled to any part of the net income of the X Trust for the year ended 30 June 2016? | A1: No

Relevant facts and circumstances: ● The trustee of the X Trust operates a retirement village. ● Each lessee of a residential unit at the village is a beneficiary under the trust. ● Under the trust’s deed, a beneficiary 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. ● 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. Beneficiaries benefit in an indirect sense from some of this expenditure because they are residents of the retirement village, reducing the need to impose levies on them, as reflected in the village’s budget papers. However, none of the expenditure is specifically for any particular beneficiary’s benefit.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 97(1). | Income Tax Assessment Act 1936 section 99A(4).

Reasons for decision: Summary: 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 for tax purposes: subsection 97(1). Where no beneficiary is presently entitled to any share of the trust’s income, the trustee is assessable on the net income of the trust estate at the rate declared by the Parliament: subsection 99A(4). 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 Advisory Committee under clause Y of the deed. Therefore no beneficiary can be said to have any interest in a share of the income of the trust with respect to the 2015-16 income year. Accordingly, the trustee is assessable under subsection 99A(4) on the whole of the net income of the trust with respect to that year.