Private ruling: Trust income
Date of advice: 29 July 2025
Published: 29 September 2025
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is there any income of the trust to which no beneficiary is presently entitled? | A1: Yes

Relevant facts and circumstances: The Deceased died on Date one. Probate was granted on Date 2. The Deceased's spouse Person A is the executor and sole beneficiary of the Estate of the Deceased (The Estate). The Estate consists of: • A residential property • A unit in a commercial building • A motor vehicle • Cash • Shares and units in managed funds On Date 3, a trust tax return was lodged with no beneficiary presently entitled to the income. As of Date 4, the trust's bank account had a balance of $XX. On Date 5, an amount was transferred from the trust's account to Person A's account. This amount represented the proceeds of a life insurance policy. On Date 6, an amount (proceeds from the sale of one parcel of shares) was deposited into the trust's bank account. On Date 7, an amount (proceeds from the sale of the motor vehicle) was deposited into the trust's bank account. On Date 8, a withdrawal was made to pay a margin lending liability of the Estate. On Date 9, the remaining shares were transferred to Person A. On Date 10, an amount (income from managed funds) was transferred to the trust's account. On the same day, the managed funds were transferred to Person A. Throughout the income year ending 30 June 20XX, an amount was transferred to Person A, mainly in consistent small amounts. The amounts received by Person A were distributions of income. As of 30 June 20XX, the closing balance of the trust's bank account was $XX. There were no remaining liabilities, except for any ongoing costs associated with the unit in the commercial building. The only other remaining asset in the Estate is the commercial unit. The net income of the trust for the year ending 30 June 20XX was $XX. This amount has been distributed to Person A. As of Date 11, the unit in the commercial building has not been sold as the unit has a lift which hasn't been working for quite some time. The lift needs to be fixed before the unit can be placed on the market for sale. You expect the Estate to be fully administered in the income year ending 30 June 20XX. You are waiting on the Deceased's child to decide if they want to purchase the unit from the Estate before the Estate can be fully administered.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 97 | Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A

Reasons for decision: Summary: There is income of the estate to which no beneficiary is presently entitled. | Detailed Reasoning - Detailed reasoning: Subsection 99(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that section 99 applies in relation to a trust estate in relation to a year of income only if section 99A does not apply in relation to that trust estate in relation to that year of income. Subsection 99(2) of the ITAA 1936 provides that where there is no part of the net income of a resident trust estate: a) that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97; b) in respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98;or c) that represents income to which a beneficiary is presently entitled that is attributable to a period when the beneficiary was not a resident and is also attributable to sources out of Australia; the trustee shall be assessed and is liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident and were not subject to any deduction. Section 97 of the ITAA 1936 provides that where a beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate: a) The assessable income of the beneficiary shall include: ii) ; So much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and iii) So much of that share of the net income of the trust estate is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia; Present entitlement is not a defined term in the ITAA 1936 and as such takes its meaning from common law. In the case of FC of T v Whiting (1943) 68 CLR 199 (Whiting's Case) The High Court of Australia has provided a definition of present entitlement. The High Court held that a residual beneficiary of a deceased estate cannot be presently entitled to the income of the trust estate until the estate has been fully administered. The High Court explained how 'presently entitled' in Division 6 should be construed in the context of a deceased estate: • With great respect, it appears to us that these provisions must be construed in the light of the general • principles of law applicable to the administration of estates by executors and trustees at law and in equity. The crucial question is at what moment of time, having regard to these general principles and to the provisions of the trust instrument, can it be said that a beneficiary has become presently entitled to a share in the income of a trust estate. A beneficiary under a will may become entitled to a share of such income as an annuitant, legatee, or a residual beneficiary. His right to share in such income would be determined by the trusts in the will, these trusts being administered in accordance with such rules of equitable administration (where applicable) as those laid down in such cases as Allhusen v Whittell (above), and Howe v Lord Dartmouth, (1802) 7 Ves. 137, 32 ER 56." The meaning of 'present entitlement' was also considered by the High Court in Taylor & Anor. v. Federal Commissioner of Taxation (1970) 119 CLR 444 where Kitto J provided: In my opinion the correct conclusion in the present case is that the son was ''presently entitled'' to the relevant income because (1) it was legally available for distribution, (2) as to the whole of it he had an absolutely vested beneficial interest in possession, and (3) but for his legal disability from giving a discharge he would have succeeded in an action to recover it from the trustees. The main principles that emerged from these cases are: • the income must be legally available for distribution to the beneficiary. It does not matter whether the amount of income has been precisely ascertained. • the beneficiary must have an indefeasible, absolutely vested, beneficial interest in possession in the trust income. That is, the interest must not be contingent; the beneficiary must have the right to demand immediate payment (or would have had the right to demand payment had they not been under a legal disability). Taxation Ruling IT 2622 provides guidance on payments to beneficiaries during the intermediate stage of a deceased estate. Paragraph 14 provides: "During the intermediate stage of administration of a deceased estate, the point may be reached where it is apparent to the executor that part of the net income of the estate will not be required to either pay or provide for debts, etc. The executor in this situation might in exercise of the executor's discretion, in fact, pay some of the income to, or on behalf of, the beneficiaries. The beneficiaries in this situation will be presently entitled to the income to the extent of the amounts actually paid to them or actually paid on their behalf. The fact that the estate has not been fully administered does not prevent the beneficiaries in this situation from being presently entitled to the income actually paid to, or on behalf of, the beneficiaries." Where a beneficiary receives a distribution that is made of income following the date of death of the deceased, they are said to be presently entitled to that income at the point of distribution even if that is before the final stages of administration. | Detailed Reasoning - Application to your circumstances: The large payment was made to Person A before any income had been derived for the year. Therefore, it cannot have been a distribution of income. Person A received other distributions before the final stages of administration of the Estate. At the time of payment of the amounts, there were no outstanding debts and the only remaining liabilities were costs associated with the commercial unit. The executor has therefore exercised their discretion to pay income to Person A. As a result, Person A is considered presently entitled to the distributed amounts. As outlined above, section 97 of the ITAA 1936 provides that such amounts should be included in the individual's assessable income for the relevant income year. After distribution of the income amounts to Person A, there is an amount of net income of the estate which remains undistributed. This income is income to which no beneficiary is presently entitled. The undistributed income will be taxable to the trust under section 99 or section 99A of the ITAA 1936.