Private ruling: Commissioner's discretion - testamentary trust
Date of advice: 13 April 2023
Published: 29 May 2023
Ruling period: 1 July 20XX to 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Pursuant to subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936), is the Commissioner of the opinion that it would be unreasonable that section 99A should apply in relation to the Testamentary Trust? | A1: Yes.

Relevant facts and circumstances: 1. Person A (the Deceased) passed away on XX XX XX and probate was granted on XX XX XX. 2. The Last Will and Testament of the Deceased (the Will) was dated XX XX XX. 3. The Deceased was an Australian resident for tax purposes. 4. Under the terms of the Will, three testamentary trusts were established for the beneficiaries, and one third of the assets split between each trust. 5. ABC Testamentary Trust (the Testamentary Trust) was set up on XX XX XX. 6. The assets held in the Testamentary Trust are solely from the deceased estate (the Estate), and the income accumulated on those assets. 7. The assets are publicly listed shares acquired before the death of the Deceased. 8. The assets were transferred from the Estate to the Testamentary Trust on XX XX XX. 9. No income was derived for the year ended 30 June 20XX. 10. For the year ended XX XX XX, X% of the income was distributed to a minor (Person B) and no beneficiary was presently entitled to the remaining X%. 11. The Testamentary Trust is a resident of Australia for tax purposes. 12. The beneficiaries of the Testamentary Trust are residents of Australia for tax purposes. 13. No other entity has directly or indirectly transferred or lent any property (including money) to, or conferred any benefits on, the Testamentary Trust, nor have any special rights or privileges been conferred or attached to the assets of the Testamentary Trust. 14. No other property will be transferred into the Testamentary Trust that is not sourced from the income or profits transferred under the Will during the period of the ruling. 15. The transfer of assets to the Testamentary Trust was made in accordance with the Will.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 subsection 104-55(1) | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 subsection 99A(2) | Income Tax Assessment Act 1936 paragraph 99A(2)(a) | Income Tax Assessment Act 1936 subparagraph 99A(2)(a)(i). | Income Tax Assessment Act 1936 paragraph 99A(2)(b) | Income Tax Assessment Act 1936 paragraph 99A(2)(c) | Income Tax Assessment Act 1936 paragraph 99A(2)(d) | Income Tax Assessment Act 1936 subsection 99A(3) | Income Tax Assessment Act 1936 subsection 99A(3A)

Reasons for decision: Summary: All legislative references are to the Income Tax Assessment Act 1936 unless otherwise specified. 16. Capital gains and franked distributions included in the net income of a trust are brought to tax in accordance with Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997 (ITAA 1997) respectively. 17. Broadly, these subdivisions operate to assess trustees under section 99 or 99A on a proportionate share of an amount of a capital gain and franked distribution to which no beneficiary is specifically entitled, but only to the extent that there is an (adjusted) share of the income of the trust estate to which no beneficiary is presently entitled. 18. All other trust income to which no beneficiary is presently entitled is assessed to the trustee under section 99A, unless the Commissioner is of the opinion that it would be unreasonable that section 99A should apply. 19. Section 99A applies unless: • the trust estate is of a kind listed in paragraphs 99A(2)(a) to (d), and • the Commissioner is of the opinion that it would be unreasonable that section 99A (and thereby, the highest rate of tax) should apply in relation to that trust estate in relation to that year of income (subsection 99A(2)). 20. If the Commissioner forms the opinion that it would be unreasonable that section 99A should apply, the trustee will be assessed under section 99. 21. A trust estate that resulted from a will, or an order of a court that varied or modified the provisions of a will, is a trust estate listed in subparagraph 99A(2)(a)(i). 22. In forming an opinion, for the purposes of subsection 99A(2), the Commissioner must consider the factors in subsection 99A(3) as follows: a) the Commissioner shall have regard to the circumstances in which and the conditions, if any, upon which, at any time, property (including money) was acquired by or lent to the trust estate, income was derived by the trust estate, benefits were conferred on the trust estate or special rights or privileges were conferred on or attached to property of the trust estate, whether or not the rights or privileges have been exercised; b) if a person who has, at any time, directly or indirectly: i. transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or ii. conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate whether or not the right or privilege has been exercised; has not, at any time, directly or indirectly: iii. transferred or lent any property (including money) to, or conferred any benefits on, another trust estate; or iv. conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of another trust estate, whether or not the right or privilege has been exercised; the Commissioner shall have regard to that fact; and c) the Commissioner shall have regard to such other matters, if any, as he or she thinks fit. 23. In the case of a deceased estate the Commissioner is required to consider the application of paragraph 99A(3)(a) as it relates to the deceased person (subsection 99A(3A)). 24. In determining the weight to be given to the matters described in subsection 99A(3), Windeyer J stated in Giris Pty Ltd v FCT (1969) 119 CLR 365; 69 ATC 4015; (1969) 1 ATR 3 that: The Commissioner is to ask himself whether it would be unreasonable that sec. 99A should apply to any particular trust estate.... That purpose I take it is to enable the Commissioner to keep sec. 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. 25. In order for a trust to result from a will, it is necessary that the will should be the source of the funds and that the trust should be created in consequence of a provision in the will or court order itself ( Case P53 82 ATC 247). 26. The Testamentary Trust was created through a will and is therefore the type of trust estate to which the Commissioner's discretion under section 99A may be exercised. 27. The assets of the Testamentary Trust are publicly listed shares acquired before the date of death of the Deceased. 28. No other entity has directly or indirectly transferred or lent any property (including money) to, or conferred any benefits on, the Testamentary Trust, nor have any special rights or privileges been conferred or attached to the assets of the Testamentary Trust. 29. No other property will be transferred into the Testamentary Trust that is not sourced from the income or profits transferred under the Will. 30. After considering the circumstances of the Testamentary Trust with regard to subsection 99A(3) of the ITAA 1936, the Commissioner is of the opinion that it would be unreasonable that section 99A should apply in relation to that trust estate for the period of the ruling. 31. As the Commissioner has formed the opinion that it would be unreasonable that section 99A should apply, the trustee of the Testamentary Trust will be assessed under section 99 for any trustee assessments.