Private ruling: Trust income
Date of advice: 6 February 2024
Published: 25 March 2024
Ruling period: Year ending 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Will the Commissioner exercise the discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the trustee of the Estate on income that no beneficiary is presently entitled to under section 99 of the ITAA 1936? | A1: Yes.

Relevant facts and circumstances: The deceased passed away a number of years ago. Probate was granted several months later. The Trust is a deceased estate established under the will of the deceased. It has taken the trustee a number of years to proceed with the final distribution to the beneficiaries. This is because the final asset of the estate, being the deceased's residence, was not sold until recently as the beneficiaries had consented for it to be occupied by a family member of the deceased. The assets of the deceased estate were outlined in the Probate documents as the former residence of the deceased, the deceased's furniture, and a small amount of funds in bank accounts. The deceased estate has not borrowed or lent any money. No special rights or privileges have been conferred or attached to the assets of the deceased estate. The deceased estate has not held assets or funds other than: assets that were owned by the deceased, funds from income earned by those assets, or funds from the sale of those assets. The deceased estate has not held investments in any private companies or private trusts or assets acquired at non-arm's length value. The deceased estate has not received a distribution of income or capital from a discretionary trust. The only income the estate has earned is the capital gain on the sale of the deceased's residence. The administration of the estate is expected to be finalised upon the completion of the private ruling for the estate.

Relevant legislative provisions: Income Tax Assessment Act 1936 subsection 99A(2)

Reasons for decision: Summary: After consideration of the relevant factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA 1936 should apply to the Estate in relation to the year ending 30 June 2024. Therefore, the Commissioner will exercise the discretion under subsection 99A(2) of the ITAA 1936 to allow section 99 of the ITAA 1936 to apply where the Trustee of the Estate is liable to pay tax on income to which no beneficiary is presently entitled for the year ending 30 June 2024. | Detailed Reasoning - Commissioner's discretion under subsection 99A(2) of the ITAA 1936 in relation to deceased estates: Section 99A of the ITAA 1936 applies in the case of trust estates of deceased persons unless the Commissioner, pursuant to subsection 99A(2) of the ITAA 1936, forms the opinion that it would be unreasonable for section 99A of the ITAA 1936 to apply in relation to the deceased estate in relation to the particular year of income. In exercising the discretion, the Commissioner will have reference to the text of the legislation itself, the intent or purpose of the legislation and relevant case law as they apply to the facts and circumstances of a particular case for the purpose of forming the required opinion under subsection 99A(2) of the ITAA 1936. The types of trust estate in respect of which the Commissioner's discretion may be exercised are listed in paragraphs 99A(2)(a) to (d) of the ITAA 1936 and include a trust estate that resulted from a will (paragraph 99A(2)(a) of the ITAA 1936). In forming the opinion for the purposes of subsection 99A(2) of the ITAA 1936 the Commissioner is required to have regard to the matter subsections 99A(3) and (3A) of the ITAA 1936 as follows: 99A(3) In forming an opinion for the purposes of subsection (2): (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. 99A(3A) For the purposes of the application of paragraph (3)(a) in relation to a trust estate of the kind referred to in paragraph (2)(a), a reference in that first-mentioned paragraph to the trust estate shall be read as including a reference to the person as a result of whose death the trust estate arose. | Detailed Reasoning - Application to your situation: We have taken the following into consideration when determining whether the Commissioner's discretion will be exercised: • The Estate is a deceased estate that resulted from the Will of the deceased which satisfies the requirement of paragraph 99A(2)(a). • The Estate is still in the 'period of administration' (per Taxation Ruling IT 2622) such that no beneficiary has been made presently entitled to the income of the Estate. • The Estate has not been fully administered at this point due to the sale of the main residence of the deceased not occurring until recently because the beneficiaries allowed a family member of the deceased to occupy the property. • The deceased estate has not borrowed or lent any money. The deceased estate has not held assets or funds other than: assets that were owned by the deceased, funds from income earned by those assets, or funds from the sale of those assets. There are no special rights or privileges attached to any property of the Estate. • The Trustee is the executor of a deceased estate, and has exercised their powers under the Will in a conventional manner (and not as a tax-avoidance device). The Estate is a deceased estate wherein the assets of the Deceased are being administered in a conventional manner. Having regard to the above matters, and the legislated purpose of section 99A of the ITAA 1936 to prevent the use of trusts for tax avoidance, the Commissioner is of the opinion that it is unreasonable for section 99A of the ITAA 1936 to apply to the Trust in respect of the year ending 30 June 2024. Therefore, the Commissioner's discretion will be exercised for that income year.