Private ruling: Statutory trust for sale - CGT Events - Net income of trust estate - beneficiaries presently entitled
Date of advice: 20 March 2026
Published: 18 May 2026
Date scheme commenced: During the year ended 30 June 20XX

Ruling: Q1: Did CGT event A1 under section 104-10 of the Income Tax Assessment Act 1997 (ITAA 1997) occur on the granting of the Court Orders? | A1: Yes | Q2: Is the total of the first, second or third elements of the cost base of the Property for the purpose of section 110-25 of the ITAA 1997 for the Trustees for the sale of the Property, equal to the capital proceeds on the sale of the Property by the Trustees? | A2: Yes | Q3: Did the Trustees make a capital gain on the sale of the Property under Part 3-1 of the ITAA 1997? | A3: No | Q4: Are the Trustees required to report in an income tax return (being a trust tax return) rental income derived from the Property during the income year ending 30 June 20YY? | A4: Yes | Q5: Is the rental income derived from the Property by the Trustees in the year ended 30 June 20YY, included in the assessable income of the Trustees in determining the net income of the Statutory Trust under subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936)? | A5: Yes | Q6: Can the Trustees deduct electricity, water rates, telephone and internet expenses incurred in relation to the part of the Property tenanted in the income year ended 30 June 20YY under section 8-1 of ITAA 1997 in determining the net income of the Statutory Trust under subsection 95(1) of the ITAA 1936? | A6: Yes | Q7: Do the Trustees have an income tax liability arising from net income derived in the income year ending 30 June 20YY under sections 98, 99 or 99A of the ITAA 1936? | A7: No | Q8: Are the Trustees required to lodge an income tax return for the income year ended 30 June 20XX and income year ending 30 June 20YY? | A8: For the year ended 30 June 20XX - No For the year ended 30 June 20YY - Yes | Q9: If the balance of net proceeds has not been distributed to the Owners by 30 June 20YY, will the Trustees have an income tax liability under sections 98, 99 or 99A of the ITAA 1936? | A9: No This private ruling applies for the following period: Year ended 30 June 20XX Year ending 30 June 20YY The scheme commenced on: During the year ended 30 June 20XX

Relevant facts and circumstances: 1. On XX June 20XX, the Supreme Court of New South Wales (NSW) made the following orders (Court Orders): 1.Orders, pursuant to s 66G of the Conveyancing Act 1919 (NSW), that: a. X and Y be appointed as trustees ("the Trustees") for the sale of the property at the address ("the Property"), which is currently registered in the names of the Plaintiff and the Defendant as tenants in common in equal shares. b. The Property be vested in the Trustees, subject to any encumbrances affecting the entirety of the Property, to be held on statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act 1919 (NSW). c. The Trustees be paid for their services as trustees out of the proceeds of sale of the Property. d. The sale be upon such terms and conditions as the Trustees may determine, including identifying any reserve price, save that the sale is to be by way of public auction or if passed in at that auction, as further determined by the Trustees; and ... f. The sale of the Property as arranged by the Trustee must occur within xxx days from the date of these orders. 2. Orders that the proceeds of sale of the sale of Property pursuant to these orders paid out as follows: a. Discharge of any registered mortgages or encumbrances over the Property; b. Payment of all outstanding rates (including council, Local Land Services and water rates) with respect to the Property. c. Payment of the agent's commission on the sale of the Property. d. Payment of the solicitor's or conveyancers costs of acting on the sale of the Trustee. e. Payment of the Trustees' reasonable costs and expenses. 3. Orders that the balance of the sale proceeds remaining be distributed between the Plaintiff and Defendant in shares commensurate with their legal interests in the Property. 4. Orders pursuant to section 81 of the Trustee Act 1925 (NSW), that the Trustees are authorised to: a. negotiate and enter into a new lease of any part of the Property with a prospective tenant, before the sale of the Property; and b. postpone the sale of the Property pending any negotiations and/or lease referred to in order 4(a) but not beyond the xxx period set out in 1(f) above. ... 2. The Trust created by the Court Orders is referred as the Statutory Trust. 3. The Plaintiff and the Defendant are companies incorporated in Australia. They are referred to as 'the Owners' in this Ruling. 4. The Trustees are residents of Australia under subsection 6(1) of the ITAA 1936. 5. The Property is a commercial property. Part of the Property is rented to a tenant during the relevant years. 6. The Trustees did not receive any rental payments during the income year ended 30 June 20XX, it being only a few days from the date of their appointment to the end of the income year on 30 June 20XX. The Trustees also did not incur any expenses during this period. 7. The Trustees have incurred expenses during the income year ending 30 June 20YY relating to the Property, such as: i. council rates, strata levies, water rates and electricity costs; and ii. costs relating to the sale of the Property, such as marketing campaign costs, legal fees, trustee fees and agent commission. 8. During the 20YY income year until the Property was sold, the Trustees received rent and incurred expenses relating to the part of the Property that was rented out. The relevant rental expenses comprised electricity, water rates, telephone, internet and other property expenses (none of these expenses were borne by the tenant). 9. There is no discretion for the Trustees to distribute net income other than in accordance with the Owners respective interests in the Property. 10. A public auction was conducted in the 20YY income year. 11. Following the auction, the Trustees entered into contracts of sale. 12. Settlement of the contracts occurred in the 20YY income year. 13. Provided a ruling is made before the end of the income year, the Trustees intend to distribute the net proceeds held on trust to the Owners in accordance with the Court Orders


Reasons for decision: Summary: Yes, CGT Event A1 occurred on the granting of the Court Orders under section 104-10 of the ITAA 1997. The Trustees acquired the Property at the time CGT event A1 occurred. | Detailed Reasoning - Detailed reasoning: Section 104-10 of the ITAA 1997 provides: (1) CGT event A1 happens if you * dispose of a * CGT asset. (2) You dispose of a *CGT asset if a change of ownership occurs from you to another entity, whether because of some act or event or by operation of law. However, a change of ownership does not occur if you stop being the legal owner of the asset but continue to be its beneficial owner. (3) The time of the event is: (a) when you enter into the contract for the * disposal; or (b) if there is no contract--when the change of ownership occurs. (4) You make a capital gain if the *capital proceeds from the disposal are more than the asset's *cost base. You make a capital loss if those capital proceeds are less than the asset's * reduced cost base. Section 109-5 of the ITAA 197 provides that you acquire a CGT asset when you become its owner. Pursuant to subsection 109-5(2) of the ITAA 1997, you are taken to acquire the asset as a result of CGT event A1 happening when the disposal contract is entered into or, if none, when the disposing entity stops being the assets' owner. The Trustees were appointed under the Court Orders made pursuant to 66G of the Conveyancing Act 1919 (NSW) (Conveyancing Act). Subsection 66G(1) provides: Where any property (other than chattels) is held in co-ownership the court may, on the application of any one or more of the co-owners, appoint trustees of the property and vest the same in such trustees, subject to incumbrances affecting the entirety, but free from incumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition. Paragraph 66G(7)(b) of the Conveyancing Act states that where property becomes subject to the statutory trust for sale, land shall be deemed to be converted upon the appointment of trustees for sale unless the court otherwise directs. ATO ID 2009/129 Income Tax: Capital gains tax: land vested in a statutory trustee for sale, CGT event A1 or CGT event E1? (ATO ID 2009/129) states that on the making of a court order under section 38 of the Property Law Act 1974 (PLA), the whole of the co-owners' interests in the property vested in the trustees for the sale of the property (subsection 38(3A) of the PLA); and the co-owners' interests were converted into personalty (subsection 38(7) of the PLA), that is, into a right to compel due performance of the trust and to share in the proceeds of sale in accordance with their interests in the property. ATO ID 2009/129 states that in these circumstances, the making of the court order effects a disposal of property from the previous owners to the trustees for sale by operation of the law. Application to your circumstances The making of the Court Orders effects a disposal of the Property from the Owners to the Trustees and resulted in CGT event A1 occurring for the Owners. The Trustees acquired the Property at the time CGT event A1 occurred. | Detailed Reasoning - Question 2: Is the total of the first, second or third elements of the cost base of the Property for the purpose of section 110-25 of the ITAA 1997 for the Trustees for the sale of the Property, equal to the capital proceeds on the sale of the Property by the Trustees? | Summary: Yes, the total of the first, second or third elements of the cost base of the Property for the purpose of section 110-25 of the ITAA 1997 for the Trustees is equal to the capital proceeds on the sale of the Property by the Trustees. | Detailed Reasoning - Question 3: Did the Trustees make a capital gain on the sale of the Property under Part 3-1 of the ITAA 1997? | Summary: No, the Trustees did not make a capital gain on the sale of the Property as their capital proceeds from the sale of the Property are equal to the cost base of the Property. | Detailed Reasoning - Detailed reasoning for Questions 2 and 3: CGT event A1 happens if you dispose of a CGT asset: section 104-10 of the ITAA 1997. Relevantly, the time of the CGT event is when you enter into the contract for the disposal: subsection 104-10(3) of the ITAA 1997. A capital gain will be made if the capital proceeds from the disposal are more than the asset's cost base: subsection 104-10(4) of the ITAA 1997. Pursuant to subsection 116-20(1) of the ITAA 1997, the capital proceeds for the event are the total of the money, or market value of any property, received (or that you are entitled to receive) in respect of the event happening. GST payable on the sale of the asset is not included in the capital proceeds: subsection 116-20(5) of the ITAA 1997. Subsection 110-25(2) of the ITAA 1997 sets out the first element of the cost base of a CGT asset: The first element is the total of: (a) the money you paid, or are required to pay, in respect of *acquiring it; and (b) the *market value of any other property you gave, or are required to give, in respect of acquiring it (worked out as at the time of the acquisition). An entity is regarded as being required to pay money in respect of acquiring a CGT asset, even if it does not have to pay it until a later time: section 103-15 of the ITAA 1997. The second element of the cost base is the incidental costs incurred to acquire the CGT asset or that relate to a CGT Event in respect of the asset, such as agent fees, legal costs, settlement costs, sales advertising/marketing costs, valuation costs and transfer costs: subsection 110-25(3) and section 110-35 of the ITAA 1997. The third element of the cost base includes the costs of owning the Property, including maintenance costs, insurance, rates and land tax: subsection 110-25(4) of the ITAA 1997. Any amount that the taxpayer has deducted or can deduct does not form part of the second or third elements of the cost base: subsection 110-45(1B) of the ITAA 1997. Application to your circumstances At the time of the making of the Court Orders, the Trustees did not pay anything and they did not give any other property for the acquisition of the Property. However, they had a responsibility to sell the Property and were required to pay the net proceeds of that sale to the Owners. The first element of the cost base of the Property is what the Trustees are required by the Court Orders to pay to the Owners from the sale of the Property, which is the net proceeds of the sale. This amount was not known until such time as the Trustees sold the Property. The costs incurred by the Trustees in holding and selling the Property including the Trustees' remuneration will form part of the second element and third elements of the Trustee's cost base for the Property, to the extent that those amounts cannot otherwise be deducted. The Trustees' total cost base of the Property in this case being the first element (net proceeds) and second/third element (holding and selling costs) will equal the capital proceeds from the sale of the Property. Accordingly, the Trustees will not make a capital gain from the sale of the Property as the capital proceeds from the CGT event A1 will not exceed the Trustees' cost base: subsection 104-10(4) of the ITAA 1997. | Detailed Reasoning - Question 4: Are the Trustees required to report in an income tax return (being a trust tax return) rental income derived from the Property during the income year ending 30 June 20YY? | Summary: Yes. See detailed reasoning under Question 8. | Detailed Reasoning - Question 5: Is the rental income derived from the Property by the Trustees in the year ended 30 June 20YY, included in the assessable income of the Trustees in determining the net income of the Statutory Trust under subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936)? | Summary: Yes. The rental income derived from the Property by the Trustees in the year ended 30 June 20YY, is included in the assessable income of the Trustees in determining the net income of the Statutory Trust under subsection 95(1) of the ITAA 1936. | Detailed Reasoning - Detailed reasoning: Subsection 95(1) of the ITAA 1936 relevantly defines 'net income' of a trust estate as follow: net income, in relation to a trust estate, means the total assessable income of the trust estate calculated under this Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions ... Subsection 6-5(1) of the ITAA 1997 includes income according to ordinary concepts (ordinary income) in assessable income. Whether or not a particular amount is income according to ordinary concepts depends on the nature and character of the receipt in the hands of the taxpayer. Rental income is regarded as ordinary income. Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. The rental income derived by the Trustees is assessable income and included in the net income of the Statutory Trust. | Detailed Reasoning - Question 6: Can the Trustees deduct electricity, water rates, telephone and internet expenses incurred in relation to the part of the Property tenanted in the income year ended 30 June 20YY under section 8-1 of ITAA 1997 in determining the net income of the Statutory Trust under subsection 95(1) of the ITAA 1936? | Summary: Yes, the Trustees can deduct electricity, water rates, telephone and internet expenses incurred in relation to the part of the Property tenanted in the income year ended 30 June 20YY under section 8-1 of ITAA 1997 in determining the net income of the Statutory Trust under subsection 95(1) of the ITAA 1936. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the ITAA 1997 sets out the rules about general deductions and provides that a deduction is allowed for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, relate to the earning of exempt income, or are prevented from being deducted by a specific provision. Specifically, section 8-1 of the ITAA 1997 states: (1) You can deduct from your assessable income any loss or outgoing to the extent that: (a) it is incurred in gaining or producing your assessable income; or (b) it is necessarily incurred in carrying on a *business for the purposes of gaining or producing your assessable income. (2) However, you cannot deduct a loss or outgoing under this section to the extent that: (a) it is a loss or outgoing of capital, or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or (d) a provision of this Act prevents you from deducting it. (3) A loss or outgoing that you can deduct under this section is called a general deduction. Subsection 8-1(1) of the ITAAA 1997 contains the two positive limbs of the general deduction rules and subsection 8-1(2) of the ITAA 1997 contains the four negative limbs of the general deduction rules. The negative limbs qualify the application of the positive limbs. The two positive limbs of subsection 8-1(1) of the ITAA 1997 are not mutually exclusive, and taxpayers that are carrying on a business can rely on either one or both of the positive limbs ( FC of T v Snowden & Wilson Pty Ltd (1958) 99 CLR 431). Subsections 8-1(1) and 8-1(2) of the ITAA 1997 together have the effect that, if neither of the positive limbs are satisfied, the expense is not deductible, and the negative limbs do not need to be considered. Where at least one of the positive limbs is satisfied, the exceptions contained in subsection 8-1(2) should then be considered to see if the deduction is excluded ( Steele v DFC of T [1999] HCA 7; 99 ATC 4242;). As stated above, a taxpayer can deduct a loss or outgoing from their assessable income to the extent that it is incurred in gaining or producing their assessable income or it is necessarily incurred in carrying on a business for the purposes of gaining or producing their assessable income. That is, in order for a loss or outgoing to be deductible, there must be a link or nexus between the loss or outgoing and the activities which produce the income. In relation to rental expenses, a taxpayer can claim a deduction for certain expenses incurred for the period that the property is rented to a tenant or it is genuinely available for rent. Expenses of a capital nature or private nature are not deductible under section 8-1 of the ITAA 1997. However, a taxpayer may be able to either: • claim a deduction for the decline in value of certain capital (depreciating) assets • claim a deduction for the cost of constructing capital works in respect of a building or structural improvement • include certain capital costs in the cost base of the property for CGT purposes. A taxpayer is generally able to claim an immediate deduction for expenses such as utility costs for a rental property, to the extent those costs are borne by the taxpayer and not the tenant. If only part of the property is used to earn rent, a taxpayer can claim only that part of the expenses that relates to the rental income. In this case, during the period that the Trustees held the Property they incurred expenses relating to part of the Property that was tenanted. The electricity, water rates, telephone and internet expenses incurred in relation to the part of the Property that was rented out are deductible under section 8-1 of ITAA 1997 and taken into account in determining the net income of the Statutory Trust under subsection 95(1) of the ITAA 1936. The other property expenses may also be deductible under section 8-1 of the ITAA 1997 to the extent that the meet the requirements of one or both of the positive limbs and are not excluded from deductibility by the negative limbs. | Detailed Reasoning - Question 7: Do the Trustees have an income tax liability arising from net income derived in the income year ending 30 June 20YY under sections 98, 99 or 99A of the ITAA 1936? | Summary: No, the Trustees do not have a tax liability arising from net income derived in the income year ending 30 June 20YY under sections 98, 99 or 99A of the ITAA 1936. | Detailed Reasoning - Detailed reasoning: Division 6 of Part III of the ITAA 1936 (Division 6) sets out the basic income tax treatment of the net income of a trust. Except as provided in the ITAA 1936 and ITAA 1997, a trustee is not liable as trustee to pay income tax upon the income of the trust estate: section 96 of the ITAA 1936. Under section 95 of the ITAA 1936 the expression 'net income', in relation to a trust estate, relevantly means the total assessable income of the trust estate calculated under the Act as if the trustee were a taxpayer in respect of that income and were a resident, less all allowable deductions (except certain defined deductions). Section 97 of the ITAA 1936 states that where a beneficiary who is not under a legal disability is presently entitled to a share of the income of a trust estate, the assessable income of the beneficiary shall include so much of that share of the net income of the trust estate. Section 95A of ITAA 36 states: 95A(1) [ Where income paid to or applied for benefit of beneficiary ] For the purposes of this Act, where a beneficiary of a trust estate is presently entitled to any income of the trust estate, the beneficiary shall be taken to continue to be presently entitled to that income notwithstanding that the income is paid to, or applied for the benefit of, the beneficiary. 95A(2) [ Vested and indefeasible interest ] For the purposes of this Act, where a beneficiary has a vested and indefeasible interest in any of the income of a trust estate but is not presently entitled to that income, the beneficiary shall be deemed to be presently entitled to that income of the trust estate. If a trust estate is a resident trust estate, liability to tax under Division 6 is generally only imposed on the trustee of the trust estate in the following circumstances: • where a beneficiary is under a legal disability and is presently entitled to a share of the income of the trust estate (subsection 98(1) of the ITAA 1936); Legal disability refers to a person who is unable to give a trustee an immediate valid discharge in respect of a distribution of trust income, for example minors, insane or an undischarged bankrupt. • where a natural person is deemed to be presently entitled to a share of the income of the trust estate under section 95A(2) of the ITAA 1936 (subsection 98(2) of the ITAA 1936); • where a beneficiary who is a non-resident at the end of the year of income is presently entitled to a share of the income of the trust estate in certain circumstances (subsection 98(3) of the ITAA 1936); • where there is a part of the income of the trust estate to which no beneficiary is presently entitled (section 99A or 99 of the ITAA 1936). Under section 102 of the ITAA 1936, the Commissioner has the discretion to tax the trustee in circumstances where a person has created a trust and has the power to revoke the trust and acquire a beneficial interest in the trust capital and income, or a trust under which income is payable to, or accumulated for the benefit of, the settlor's children under the age of 18 years. Section 102 is not relevant in this case. In the context of Division 6, the meaning of 'income of the trust estate' depends on the terms of the particular trust and the general law of trusts. Further, in the statutory context of Division 6, income of a trust estate is: • measured in respect of distinct years of income; • a product 'of the trust estate', and • a reference to the net amount of income to which a beneficiary could be made presently entitled or accumulated - it is a reference to the income available for distribution to beneficiaries or accumulation by the trustee, commonly referred to as 'distributable income'. There is no definition of the term 'presently entitled' in the ITAA 1936 or the ITAA 1997. It is therefore necessary to establish the meaning which has been given to the term by the courts. The principal cases on the concept of present entitlement are the High Court decisions in FC of T v. Whiting (1943) 68 CLR 199 (Whiting) and Taylor v. FC of T (1970) 119 CLR 444 (Taylor). The principles in Taylor's case are also dealt with in Income Tax Ruling IT 319. In Whiting's case at page 215: a beneficiary is presently entitled only when he is entitled to immediate payment of a share of the income of a trust estate. In Taylor's case, Kitto J set down 3 tests in respect of present entitlement: • the beneficiary has an absolute vested beneficial interest in possession; • the amount is legally available for distribution; and • but for a legal disability from giving a discharge, the beneficiary would have a right to obtain payment of the amount from the trustee. The main principles emerging from Whiting's and Taylor's case are: • The beneficiary must have an indefeasible, absolutely vested, beneficial interest in possession in the trust income. That is, the interest must not be contingent and 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). An interest is said to be defeasible where it can be brought to an end and indefeasible where it cannot. • The income must be legally available for distribution to the beneficiary. It does not matter whether the amount of income has not been exactly ascertained. Therefore, the fact that you are not in a position to know exactly what is available to distribute to a beneficiary does not alter the fact that in a legal sense, a beneficiary can still demand payment and be presently entitled; The principles concerning the meaning of present entitlement from Whiting and Taylor were applied by the Full High Court in FC of T v Totledge Pty Ltd [1982] FCA 64, when it said: ... the preferable construction of sec. 97(1) is to treat the requirement of present entitlement to a share of the income of the trust estate as not being concerned with distinctions between gross income as derived and 'surplus income' after payment of costs, expenses and outgoings but as referring to a present vested right to demand and receive payment of the whole or part of what has been received by the trustee as income and, retaining that character in his hands, is legally available to be distributed to those entitled to it as beneficiaries under the trusts to the relevant trust estate. Such a right to demand and receive payment represents a present entitlement to receive a share of what retains its character as income of the trust estate regardless of whether upon closer analysis, it can be seen to reflect a beneficial interest in gross income as derived or whether it represents no more than, for example, the right of an annuitant to be paid a particular amount from surplus or net income. Examination of the decided cases in which reference has been made to sec. 97(1) supports this approach. The High Court in Harmer & Ors v FC of T [1991] HCA 51 ( Harmer) , expressed the tests as follows at [8]: The parties are agreed that the cases, see, in particular, Federal Commissioner of Taxation v. Whiting...; Taylor v. Federal Commissioner of Taxation ...; establish that a beneficiary is "presently entitled" to a share of the income of a trust estate if, but only if: (a) the beneficiary has an interest in the income which is both vested in interest and vested in possession; and (b) the beneficiary has a present legal right to demand and receive payment of the income, whether or not the precise entitlement can be ascertained before the end of the relevant year of income and whether or not the trustee has the funds available for immediate payment. The case of the Trustees of the Estate Mortgage Fighting Fund v Commissioner of Taxation [2000] FCA 981, concerned whether the Trustee of the Estate Mortgage Fighting Fund, that had been established to institute and pursue claims against various estate mortgage trusts in order to recover monies lost by beneficiaries due to the failure of the various trusts, were assessable under section 99A of the ITAA 1997. To finance the litigation, the beneficiaries of the Estate Mortgage Fighting Fund made contributions to the trust fund. Under the trust deed, the Trustee was required to hold the trust fund upon trust for the beneficiaries in the shares in which they had made contributions. Under the terms of the trust, the Trustee was required to accumulate the income, which would form part of the trust fund, and had the power to expend the money for the purposes of the trust. Hill J observed that it was unnecessary to determine conclusively if there was present entitlement because it was clear there was deemed present entitlement under 95A(2) of the ITAA 1936. This was because the beneficiaries had a vested and indefeasible interest in the income of the trust as at the end of an income year: 56. There is no doubt that the beneficiaries of the trust have an interest in both the capital and the income of the trust. That interest is pro rata to the contributions they have made to the trust. That there is an interest in income which is vested is recognised by clause 2.3 which refers back to the definition of the "trust fund" which includes both income and capital. It may be recognised also by clause 7.1 which treats the beneficiaries as consenting to the trustees' actions (implicitly, the use of the income for the purposes of the fund) by force of their having executed a form of approval. The evidence does not demonstrate whether any approval signed did in fact relate to the trustees dealing with income. But whether any such approval was given, the terms of the trust deed themselves acknowledge that the trustees will deal with income in accordance with the deed, that is to say, by subscribing to the trust beneficiaries can be taken to have accepted that the trustees would deal with income on the terms contemplated by the trust deed. 57. One may be permitted to ask whose money the trustees expended when they used income which was available to them. The answer is, as was acknowledged by counsel for the Commissioner, that the income expended belonged to the beneficiaries in the shares determined by their contributions. Clearly the expenditure was authorised by the beneficiaries, either impliedly or explicitly is not material. 58. There is no condition attaching to the entitlement of the beneficiaries to the income. That they have authorised it to be spent by the trustees is not a condition of their entitlement, it is something which arises because of that entitlement. 59. In my view the Tribunal erred in law in holding that the interest of the beneficiaries in income was not vested and indefeasible and its decision should be set aside... Application to your circumstances Paragraph 1(b) of the Court Orders refers to the Property being vested in the Trustees to be held on statutory trust for sale under Division 6 of Part 4 of the Conveyancing Act. Paragraph 66F(2)(a) of the Conveyancing Act states: Property held upon the "statutory trust for sale" shall be held upon trust to sell the same and to stand possessed of the net proceeds of sale, after payment of costs and expenses, and of the net income until sale after payment of costs, expenses, and outgoings, and in the case of land of rates, taxes, costs of insurance, repairs properly payable out of income, and other outgoings upon such trusts, and subject to such powers and provisions as may be requisite for giving effect to the rights of the co-owners, Under this provision, the Trustees appointed for a statutory trust for sale are required to hold both the proceeds of the sale of the property and any income that may be generated from that property until sale net of costs, on trust for giving effect to the rights of the co-owners. Under the terms of the Statutory Trust as provided by the Court Orders and the Conveyancing Act, the Owners have a vested and indefeasible interest in the net income derived by the Trustees during the period from the date of the Court Order until the date the sale of the Property was completed, in shares commensurate with their legal interests in the Property. There is no bar to their right to demand and receive payment of that income once sale of the Property has been completed. Therefore, they are presently entitled to the income of the Statutory Trust. In any event, because the Owners have a vested and indefeasible interest in the income of the Statutory Trust, they would be deemed to be presently entitled (if not otherwise) under subsection 95A(2) of the ITAA 1936. Therefore, as the Owners are presently entitled to all of the income of the Statutory Trust and there is no part of the income to which a beneficiary is not presently entitled, the Trustees would not be assessable under section 99A (or section 99) of the ITAA 1936. The Trustees are also not assessable under section 98 of the ITAA 1936 in respect of any beneficiaries' share, as the beneficiaries are not under a legal disability and are all Australian resident companies (in the case of 2 beneficiaries, in their capacity as trustee of another trust). | Detailed Reasoning - Question 8: Are the Trustees required to lodge an income tax return for the income year ended 30 June 20XX and income year ending 30 June 20YY? | Summary: For the year ended 30 June 20XX - No For the year ended 30 June 20YY - Yes | Detailed Reasoning - Detailed reasoning: Subsection 161(1) of ITAA 1936 provides that: Every person must, if required by the Commissioner by legislative instrument, give to the Commissioner a return for a year of income within the period specified in the instrument. Each year, by way of Legislative Instrument, the Commissioner will typically require Australian resident trustees of trust estates that have derived income (including capital gains) to provide a return of income for the relevant year of income. The instrument will typically reserve the power of the Commissioner, or an authorised officer, to grant an exemption from lodgment of a return for a year of income. The exemption in PS LA Practice Statement Law Administration PS LA 2000/2 An exemption for the trustees of some trust estates from the requirement to furnish a tax return on behalf of the trust estate will not apply to a statutory trustee for sale under section 66G of the Conveyancing Act. This is because, although the co-owners of the property will be entitled to the net proceeds of the sale of the property and any net income derived from the property, the co-owners are not absolutely entitled to the property of the trust under subsection 106-50 of the ITAA 1997. This is a requirement to apply the exemption for 'transparent trusts' under paragraph 10 of the PS LA 2000/2. That is, the requirement is that a capital gain (if any) will not be assessable to the trustee but to an absolutely entitled beneficiary. | Detailed Reasoning - Application to your circumstances: The Trustees did not receive any income (including capital gains) during the year ended 30 June 20XX. Therefore, they are not required to lodge a return in the year ended 30 June 20XX. The Trustees did not make a capital gain on the sale of the Property in the year ended 30 June 20YY. However, they did receive rental income. Pursuant to the legislative instrument for the relevant years, the Trustees will be required to lodge an income tax return for the 20YY income year. | Detailed Reasoning - Question 9: If the balance of net proceeds has not been distributed to the Owners by 30 June 20YY, will the Trustees have an income tax liability under sections 98, 99 or 99A of the 1936 Act? | Summary: No, the Trustees do not have a tax liability arising from net income derived in the income year ending 30 June 20YY under sections 98, 99 or 99A of the ITAA 1936. | Detailed Reasoning - Detailed reasoning: Please refer to detailed reasoning under Question 7. The Owners are presently entitled to the income of the Statutory Trust. This is so, irrespective of whether or not the amounts to which they are entitled have been paid to the Owners by 30 June 20YY. Where the amounts are paid to the Owners before 30 June 20YY, the Owners continue to be presently entitled to that income for the purposes of Division 6: subsection 95A(1) of the ITAA 1936.