Private ruling: Division 6AA – excepted trust income – testamentary trust
Date of advice: 22 November 2017
Published: April 2018
Ruling period: Income year ending 30 June 2018 | Income year ending 30 June 2019 | Income year ending 30 June 2020 | Income year ending 30 June 2021 | Income year ending 30 June 2022.
Date scheme commenced: 1 July 2017.

Ruling: Q1: Where funds from the Deceased Estate are transferred to into the Testamentary Trust will the income generated from the funds be classed as excepted trust income if minor beneficiaries are made presently entitled to that income? | A1: Yes. The income from the Testamentary Trust will be excepted trust provided the anti-avoidance provisions (subsections 102AG(3) and 102AG(4) of the Income Tax Assessment Act 1936 ) do not apply. On the facts provided, the Commissioner does not consider these anti-avoidance provisions would apply.

Relevant facts and circumstances: Person A and Person B created separate Wills. Person A and Person B’s Wills mirrored each other’s and provided the following: ● The devising and bequeathing of the whole of the real and personal estate to be held on trust for the trustee to pay Person A /Person B’s just debts, funeral, testamentary and administration expenses; and ● The establishment of a separate beneficiary testamentary trust with the residual of the estate, naming their child (Person C) as the primary beneficiary. Person A passed away a number of years after the Wills were created. A number of months later the Testamentary Trust was established in accordance with Person A’s Will. Person B passed away recently. No testamentary trust has been established from the residual of Person B’s estate at this time. In order to reduce the cost of setting up and administering a second testamentary trust on the same terms for the same beneficiaries in accordance with Person B’s Will, the executor of Person B’s estate, is seeking to transfer the residual of Person B's estate directly into the Testamentary Trust. The executor of Person B’s estate proposes achieve this by the exercise of a discretionary power vested in the executor under Person B’s Will to affect the transfer of the residual estate directly to the Testamentary Trust. It is also proposed to enter into a Deed of Family Arrangement to the same effect. The residual of Person B’s estate is cash (the funds).

Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6AA | Income Tax Assessment Act 1936 Subsection 102AC(2) | Income Tax Assessment Act 1936 Subsection 102AG(2) | Income Tax Assessment Act 1936 Subsection 102AG(3) | Income Tax Assessment Act 1936 Subsection 102AG(4)