Private ruling: Taxation of trust income
Date of advice: 14 June 2016
Published: July 2016
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Will the Commissioner exercise his discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the income of the trust estate under section 99 of the ITAA 1936? | A1: Yes

Relevant facts and circumstances: The deceased passed away during the 20XX-XX financial year. The executors and beneficiaries of the Estate are relatives. By 30 June 20YY all of the assets held by the deceased at the time of their death had been sold and the proceeds distributed to the beneficiaries in accordance with their Will. Delays in obtaining the necessary documentation regarding the purchase of the assets held by the Estate resulted in the administration of the Estate exceeding three years. The Estate has not borrowed from others, lent money to others or transferred assets into the Estate. No special rights or privileges were attached to the property of the Estate.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 99 | Income Tax Assessment Act 1936 Section 99A

Reasons for decision: Summary: Sections 99 and 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to assess a trustee on income to which no beneficiary is presently entitled or income which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A of the ITAA 1936. Section 99A applies in relation to all trusts unless: • the trust resulted from a will; subparagraph 99A(2)(a)(i) • the trust is bankrupt estate; paragraphs 99A(2)(b) and (c) • the trust is a trust that consists of property referred to in paragraph 102AG(2)(c) and the Commissioner forms the opinion that it would be unreasonable to apply section 99A of the ITAA 1936 in such circumstances. Section 99A(2) of the ITAA 1936 gives the Commissioner a discretion to assess the trustee pursuant to section 99 of the ITAA 1936, rather than section 99A of the ITAA 1936, inter alia, in relation to a trust estate that resulted from a will, a codicil, an intestacy or a court order varying the provisions of a will, a codicil or the operation of the intestacy provisions Subsection 99A(3) provides that in forming an opinion for the purposes of subsection 99A(2) the Commissioner is to have regard to certain matters. (1) the circumstances in which and the conditions, if any, upon which, at any time- a. property - including money - was acquired by or lent to the trust estate, b. income was derived by the trust estate, c. benefits were conferred on the trust estate, or d. special rights or privileges - irrespective of whether they have been exercised - were conferred on or attached to property of the trust estate. (1) whether any person, who has at any time, directly or indirectly- a. transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or b. conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate, whether or not the right or privilege has been exercised, (1) has at any time, directly or indirectly, done any similar thing in relation to any other trust estate. (2) such other matters, if any, as they think fit. Consequently, the favourable exercise of the Commissioner's discretion under subsection 99A(2) of the ITAA 1936 means the highest rate of income tax does not apply to trust estates resulting from a will, codicil, etc. These include both the estate of a deceased person and testamentary trusts established pursuant to the terms of a will. Having regards to the circumstances the Commissioner will exercise the discretion to assess the income of the trust in accordance with section 99 of the ITAA 1936.