Private ruling: Testamentary trust and excepted income
Date of advice: 14 April 2022
Published: July 2022
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 13 April 20XX

Ruling: Q1: Is the income earned by the Trust considered excepted trust income? | A1: Yes. It is accepted that the Trust has satisfied the conditions set out in subparagraph 102AG(2)(c)(viii) of the Income Tax Assessment Act 1936 (ITAA 1936). Therefore the income that is derived by the Trust exclusively from the income or capital from property transferred as a result of the Court Order to benefit the beneficiaries will be considered excepted trust income.

Relevant facts and circumstances: The Deceased had an ownership interest in a dwelling as join tenants with his spouse (the Dwelling). The Deceased passed away and their interest in the Dwelling passed to their spouse. The Trustees of the Deceased Estate are Trustee A and Trustee B (the Trustees). At the time of the Deceased's death, Family Court was proceeding a financial settlement following the Deceased's divorce. The settlement concerned the sale of the Dwelling and the split of the proceeds received from the sale. On XX June 20XX Court Orders were received. They directed the Deceased's spouse to pay a percentage of the proceeds from the sale of the Dwelling to Trustee A. The Trustees established a bank account to hold the proceeds received from the sale of the Dwelling, pending the establishment of the Trust. On XX April 20XX the Trust was established. The Trust was established for the sole purpose of holding the proceeds from the sale and distributing them to the beneficiaries according to the Deceased's will. The Trustees have only distributed profits to the Deceased's three children as per the Deceased's will dated XX October 20XX. Capital held in the Trust was paid to two out of the three children when they reached the age of 21. The third child is still under age, and therefore the Trust continues. The funds in the Trust were never mixed with any personal funds of the Trustees and were always kept for the sole purpose of executing the will.

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6AA | Income Tax Assessment Act 1936 Section 102AG | Income Tax Assessment Act 1936 Subsection 102AGA (2)