Private ruling: Present entitlement
Published: June 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2011

Ruling: Question and answers: | Are you entitled to recognise the income from investments on receipt of the income rather than when you are presently entitled to the income? | No.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 6-5 | Income Tax Assessment Act 1996 Subsection 97(1).

Reasons for decision: Summary: Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) states that if you are an Australian resident, your assessable income includes the ordinary income you derive directly or indirectly from all sources, whether in Australia or overseas in the income year. Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income may be included in assessable income under another provision as statutory income. Distributions from a trust are included in your assessable income under subsection 97(1) of the Income Tax Assessment Act 1936 (ITAA 1936). Here it states that if you, as a beneficiary of a trust, are presently entitled to a share of income from that trust, your assessable income shall include that portion of the trust's income that your are eligible to receive (paragraph 97(1)(a) of the ITAA 1936). This would include distributions received through investments in a unit trust. A beneficiary will be presently entitled to the assets which are held in trust for them if they could take legal action to recover their share of income from the trust at any time. There are a couple of extensions to the rule, such as if the beneficiary is under a legal disability, or they have a vested interest in the trust, they are still deemed to be presently entitled to the asset. These extensions or conditions will be stipulated in the trust deed. In basic terms though, if the beneficiary is able to demand their share of the asset from the trustee, they will be presently entitled to any income derived. Taxation Determination TD 94/72 Income tax: when is a distribution by the trustee of a unit trust included in the assessable income of a unitholder ; discusses the Commisioner's view on when a unit trust distribution should be included in you assessable income. Taxation Determination TD 94/72 states: 1. A distribution by the trustee of a unit trust is included in the assessable income of a unitholder in the year of income in which the unitholder is presently entitled to a share of the income of the unit trust, rather than the year in which the distribution is received by the unitholder. 2. Unless a provision in the trust deed states otherwise, a unitholder is entitled to a share of the income of a unit trust at the end of the period during which the income is derived. 3. Accordingly, a unitholder must include in assessable income for a particular year of income the share of net trust income to which the unitholder is entitled in that year of income, e.g. half-yearly or quarterly distributions. The date on which the distribution statement or actual payment is received by the unitholder is not relevant Therefore, the trustee of WXT is required to declare the net distribution that it receives from investing in unit trusts, despite the fact that they will not actually have received the cash payment. This is because the trustee will be presently entitled to this income, which is specifically included as part of your assessable income under subsection 97(1) of the ITAA 1936. In the private ruling application reference has been made to IT 328, however this ruling was withdrawn on 1 September 2011 and therefore is no longer the view of the ATO. Whilst we acknowledge your particular circumstance there is no discretion within the trusts provisions that allows you to recognise the income at the time of receipt.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Relevant facts: The trustee for the WXY Trust (WXT) is seeking to earn income through making investments in listed trusts. | The trust has a fiduciary obligation to the beneficiaries of the trust to invest the trust monies with due care and due diligence, and to maximise the return to the trust. | The trust is seeking to invest in real estate and infrastructure trust's listed on the Australian Stock Exchange (ASX). | Many of the trusts listed on the ASX issue a notice of estimated distribution prior to 30 June in the income year. | The notice of estimated distribution does not identify the character of the components of the distribution, or provide a guarantee the beneficiary is entitled to the estimated distribution. | Due to the complexity and uncertainty of the taxation of trusts, in particular the timing of receipts from listed trusts, the WXT has chosen to avoid making investments in listed trusts.