Private ruling: Trust income
Published: March 2015
Ruling period: Year ending 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Is the income derived from a superannuation death benefit paid to a dependent minor from the trust regarded as excepted trust income and taxed at normal rates? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1936 Subsection 102AC(1). | Income Tax Assessment Act 1936 Subsection 102AC(2). | Income Tax Assessment Act 1936 Subsection 102AG(1). | Income Tax Assessment Act 1936 Subsection 102AG(2). | Income Tax Assessment Act 1936 Paragraph 102AG(2)(c)(v) | Income Tax Rates Act 1986 Schedule 7.

Reasons for decision: Summary: Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) sets out special rules that apply in working out the income tax liability on the income of persons who are prescribed persons. 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), under 18 years of age at the end of the income year. The beneficiary is a prescribed person for the purposes of Division 6AA of the ITAA 1936. Under Division 6AA of the ITAA 1936 special rates of tax and a lower tax free threshold apply to taxable income, other than excepted income, derived by a prescribed person. Where a beneficiary of a trust estate is under the age of 18 years at the end of the year, the whole of the beneficiary's share of the net income of the trust estate is subject to Division 6AA of the ITAA 1936 unless it is 'excepted trust income' (subsection 102AG(1) of the ITAA 1936). Subsection 102AG(2) of the ITAA 1936 lists the various types of assessable income of a trust estate which are 'excepted trust income' in relation to the beneficiary of the trust estate. Assessable income 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 a result of the death of a person that is paid out of a provident, benefit, superannuation or retirement fund is listed as "excepted trust income" (subparagraph 102AG(2)(c)(v)of the ITAA 1936). Therefore income derived from the investment of the superannuation death benefit is considered to be excepted trust income under subparagraph 102AG(2)(c)(v) of the ITAA 1936. The distribution of this income from the trust to the minor beneficiary is therefore excepted income and is not assessable under the special rules of Division 6AA of the ITAA 1936. The income is assessed as per normal tax rates set out in Schedule 7 of the Income Tax Rates Act 1986 .

Relevant facts: Person A passed away with a superannuation fund. | A trust was set up for the superannuation death benefit monies with the sole beneficiary being a dependent minor of person A. | The trust funds will be invested. | The trust may apply all or part of the income or capital of the trust fund for the maintenance, education, advancement or other benefit of the beneficiary in such manner as the trustee thinks fit.