Private ruling: Trust – Commissioner’s discretion - distribution to tax exempt entity – failure to notify
Date of advice: 6 March 2018
Published: June 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner exercise the discretion in subsection 100AA(4) of the Income Tax Assessment Act 1936 (ITAA 1936) to treat a tax exempt beneficiary as being presently entitled to part of your income in the year ended 30 June 20XX? | A1: Yes.

Relevant facts and circumstances: You are a trust. You resolved to give part of your income to a tax exempt entity. You did not pay, or notify the exempt entity of, all of their present entitlement within the required time period. You paid the shortfall amount to the exempt entity soon after the required time period. The Commissioner has not previously applied this discretion in relation to you. The shortfall was a minor amount and represented a small percentage of the exempt entity’s present entitlement. That is, the amount actually paid to the exempt entity during the year ended 30 June 20XX was many times larger than the shortfall amount.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 100AA | Income Tax Assessment Act 1936 subsection 100AA(2) | Income Tax Assessment Act 1936 subsection 100AA(3) | Income Tax Assessment Act 1936 subsection 100AA(4) | Income Tax Assessment Act 1936 subsection 100AA(5)

Reasons for decision: Summary: Under section 100AA of the ITAA 1936, an exempt beneficiary is treated as not being presently entitled, and having never been presently entitled, to an amount of the income of a trust estate where, at the end of 2 months after the end of the relevant income year, the trustee has failed to notify the exempt entity in writing of the present entitlement. Instead the trustee is assessable on the amount under section 99A of the ITAA 1997. The trustee is treated as giving the exempt entity notice in writing of the present entitlement at a time to the extent that the trustee pays the exempt entity the amount of the present entitlement at that time (subsection 100AA(2) of the ITAA 1936). The Commissioner has the discretion to disregard the trustee’s failure to notify within the required time period (subsection 100AA(4) of the ITAA 1936). The effect of exercising the discretion is that the exempt entity is presently entitled to the amount of net income and the trustee is not liable to tax on the amount under section 99A. In making a decision to disregard the failure to notify, or refusing to make such a decision, the Commissioner must have regard to the following: (a) the circumstances that led to the failure (b) the extent to which the trustee has taken action to try to correct the failure, and if so, how quickly that action was taken (c) whether the Commissioner has exercised the discretion in the past in relation to the trustee, and if so, the circumstances in which this occurred, and (d) any other matters that the Commissioner considers relevant (subsection 100AA(5) of the ITAA 1936). Having considered the relevant factors above, and the particular circumstances of your case, the Commissioner will exercise the discretion in subsection 100AA(4) of the ITAA 1936 to disregard the failure of the trustees to notify the tax exempt entity of the full amount of its present entitlement.