Private ruling: Excepted Trust income
Date of advice: 16 June 2016
Published: August 2016
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020 | Year ended 30 June 2021 | Year ended 30 June 2022 | Year ended 30 June 2023
Date scheme commenced: 1 July 2014

Ruling: Q1: Will the income of the trust paid to the beneficiary be "excepted trust income" for the purposes of section 102AG(2)(c)(v) of the ITAA 1936? | A1: Yes.

Relevant facts and circumstances: The deceased died on the XXXX. A Superfund created a family trust following the death of the deceased. The trust contains proceeds from the deceased superannuation fund. The child of the deceased is the only beneficiary of the trust and is under the age of 18. The trust deed states that when the beneficiary reaches the age of 18, the trustee shall hold the trust fund for the beneficiary absolutely PROVIDED THAT if the beneficiary dies before reaching the age of 18 when the trustee shall hold the trust fund for the estate of the beneficiary.

Relevant legislative provisions: Division 6AA of the Income Tax Assessment Act 1936 | Section 102AC(2) of the Income Tax Assessment Act 1936 | Subsection 102AG(2) of the Income Tax Assessment Act 1936 | Subparagraph 102AG(c)(v) of the Income Tax Assessment Act 1936

Reasons for decision: Summary: Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) ensures that special rates of tax and a lower tax free threshold apply in working out the basic income tax liability on taxable income, other than excepted income, derived by a prescribed person. A prescribed person is defined in subsection 102AC(1) of the ITAA 1936 to include any person, other than an excepted person (as defined in subsection 102AC(2) of the ITAA 1936), who is under 18 years of age on the last day of the income year. In this case, the beneficiary is a minor as they are under 18 years of age. Therefore they are considered to be a prescribed person for the purposes of subsection 102AC(1) of the ITAA 1936. Where the beneficiary of a trust is a prescribed person, Division 6AA of the ITAA 1936 will apply to so much of the beneficiary's share of the net income of the trust that is not excepted trust income (subsection 102AG(1) of the ITAA 1936). Subsection 102AG(2) of the ITAA 1936 lists the various types of income of a trust estate which are excepted trust income in relation to the beneficiary of the trust estate. Assessable income that derived by the trustee of the trust estate from the investment of any property transferred to the trustee for the benefit of the beneficiary directly as the result of the death of a person and out of a provident, benefit, superannuation or retirement fund is excepted trust income (subparagraph 102AG(2)(c)(v) of the ITAA 1936). In this case, the arrangement meets the requirements of subparagraph 102AG(2)(c)(v) of the ITAA 1936. Therefore, the income would be excepted trust income.