Private ruling: Excepted Trust Income
Date of advice: 14 April 2016
Published: June 2016
Ruling period: Year ended 30 June 2016 | Year ended 30 June 2017
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the income that is derived by you from the investment of your beneficiary loan account remain taxable as excepted assessable income? | A1: No.

Relevant facts and circumstances: You are a beneficiary of a testamentary trust. The deceased died on the XXXX. You are a minor. The testamentary trust is being wound up. As a result of winding up the trust, you will receive cash and other assets. You intend to invest the proceeds from the testamentary trust in various types of investments.

Relevant legislative provisions: Division 6AA of the Income Tax Assessment Act 1936 | Section 102AC(2) of the Income Tax Assessment Act 1936 | Section 102AE of the Income Tax Assessment Act 1936 | Subsection 102AE(2) of the Income Tax Assessment Act 1936 | Subparagraph 102AE(c)(ii) 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, you are a minor, under 18 years of age, and are a prescribed person for the purposes of subsection 102AC(1) of the ITAA 1936. Division 6AA of the ITAA 1936 will apply to so much of the assessable income of the person of the year of income as is not excepted assessable income. (Subsection 102AE(1) of the ITAA 1936). Subsection 102AE(2) of the ITAA 1936 lists the various types of income which are excepted assessable income. The relevant provisions for the facts of this case would be subsection 102AE(2)(c) of the ITAA 1936: c) is derived by the minor from the investment of any property: (i) that devolved upon the minor from the estate of a deceased person; (ii) that was transferred to the minor by another person out of property that devolved upon that other person from the estate of a deceased person and was so transferred within 3 years after the date of the death of the deceased person; In this case, the property of the estate devolved upon the trustees of the trust as per the terms set out in the will. Therefore, in order for the income to be excepted trust income subparagraph 102AE(2)(c)(ii) of the ITAA 1936 would need to be satisfied. The deceased passed away on the XXXX and the property has not yet been transferred to you as a minor beneficiary of the testamentary trust. Consequently, as the property has not been transferred to the minor beneficiary within three years after the date of death of the deceased person, the income will not be excepted trust income and special rates of tax and a lower tax free threshold will apply.