Private ruling: Trust - Commissioner's discretion
Date of advice: 1 November 2016
Published: February 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the Commissioner exercise his discretion to apply tax rates as per section 99 of the ITAA 1936 to the trust income? | A1: Yes

Relevant facts and circumstances: The testamentary trust was created under the will of the deceased person. The only assets of the trust are those that devolved on the trustee as a direct consequence of the will. There have been no efforts made to increase the assets of the trust.

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

Reasons for decision: Summary: Section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) provides that a special rate of tax will apply to certain trust income. The special rate of tax will apply to a share of trust income to which no beneficiary is presently entitled. The applicable tax rate is the highest marginal rate of tax for resident individuals. However, subparagraph 99A(2)(a)(i) of the ITAA 1936 provides that the special rate of tax will not apply to a trust estate that resulted from a will if the Commissioner is of the opinion that it would be unreasonable for the special rate of tax apply to that trust income. If the Commissioner is of the opinion that it would be unreasonable for the special rate of tax apply to the trust income, then more concessional rates of tax will apply under section 99 of the ITAA 1936. In forming his opinion, the Commissioner must have regard to the matters listed in subsection 99A(3) of the ITAA 1936. These matters include situations where an attempt has been made to increase the assets of the trust by, for example, granting of special rights or privileges to the trust, the transfer of the property to it, or the making of loans to it. In your case, the testamentary trust was created from a deceased estate. There is no evidence that an attempt has been made to increase the assets of the trust. In the circumstances, the Commissioner is of the opinion that it would be unreasonable to apply the special rate of tax under section 99A of the ITAA 1936 to the trust income to which no beneficiary is presently entitled. Accordingly, the Commissioner will exercise his discretion under subsection 99A(2) of the ITAA 1936 and assess the trust income under section 99 of the ITAA 1936.