Private ruling: Taxation consequences of distributions from a private company
Date of advice: 27 October 2015
Published: October 2015
Ruling period: Income year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Will the component of the proposed distribution debited to the retained earnings account of Company X be a frankable distribution within the meaning of subdivision 202-C of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes | Q2: Will the Commissioner make a determination pursuant to subsection 45B(3) of the Income Tax Assessment Act 1936 (ITAA 1936) that section 45C of the ITAA 1936 applies to treat some or all of the capital component of the proposed distribution as unfrankable dividends? | A2: No | Q3: Will the component of the proposed distribution debited to the share capital account of Company X give rise to CGT event G1 for Y Family Trust (YFT)? | A3: Yes | Q4: If yes, will CGT event G1 apply to the YFT such that the cost base of the shares in Company X will be reduced at the time of the distribution? | A4: Yes | Q5: Will Division 7A of the ITAA 1936 apply to YFT in relation to the return of capital component or the dividend component under the proposed distribution? | A5: No | Q6: Will Division 7A of the ITAA 1936 apply to the proposed distributions from YFT to Taxpayer Z (as a Beneficiary of YFT), distributed as part of The Arrangement? | A6: No | Q7: Will the proposed distribution of Trust Capital to Taxpayer Z (as a beneficiary of the YFT) be a return of corpus from YFT to Taxpayer Z, and therefore not be assessable to Taxpayer Z under Division 6 of the ITAA 1936? | A7: Yes

Relevant facts and circumstances: The Arrangement • The arrangement involves a proposed payment of a fully franked dividend debited from Company X's retained earnings account and a return of share capital debited from Company X's share capital account to its sole shareholder, YFT; • The arrangement also involves the distribution of an amount of the return of capital and fully-franked dividend to Taxpayer Z (a discretionary beneficiary of the YFT; • Taxpayer Z currently intends to apply the distribution to repay loans currently owing to YFT and any associated tax liability in respect of the distributions, with any remaining amounts lent back to the YFT for future investments; and • It is currently intended that the YFT will use the loan funds repaid to repay loans owing to it by Company X. The distributions are proposed in the context of Company X's reduced capital requirements. The shares in Company X are owned by the YFT, from which the Beneficiaries receive distributions. Company X and YFT financials Company X has a history of paying dividends to its shareholder, the YFT. As at 30 June 2014, Company X had a positive franking account balance. Company X's retained earnings account comprises profits from passive investments. It is intended that Company X will pay a fully-franked dividend for the 2015 financial year. There have been no returns of capital or other dealings in Company X shares since 2001. In addition, Company X has made loans to the YFT. Proposed distributions A restructure and simplification is proposed in respect of investment activities and certain interests held by the Beneficiaries in the YFT and Company X, and the intended repayment of certain associated loan accounts, for reasons including that the current group structure is no longer suitable as: (a) significant capital, tied within the existing structure, has over the years become superfluous to entity needs due in part to changes in focus of investment, Company X generating its own profits for investment and redundancies of certain entities as investment entities; (b) the Beneficiaries' interests need to be separated; (c) certain assets held within the structure are or were being utilised by individuals; and (d) the Beneficiaries' children have matured, are adults and have their own families to consider. As part of that process, it is proposed that the distributions will be made in accordance with the provisions of the Corporations Act 2001, whereby Company X will undertake a return of capital and pay a fully-franked dividend to its shareholder, YFT, consisting of: (i) a fully-franked dividend debited from the company's retained earnings account; (ii) a return of share capital of an equal amount debited from the company's share capital account; and (iii) there will be no cancellation of shares. After the distribution of the return of capital and fully-franked dividend to the Beneficiaries, it is the intention of the Beneficiaries to repay loans currently owing to YFT and any associated tax liability in respect of the distributions, with any remaining amounts lent back to the YFT for future investments. The exact amounts of the payments will depend on the parties' circumstances at the time of the payment, taking into account any further accruals or repayments in the meantime. This will be dependent on the timing of the resolution of the tax consequences of the proposal. It is currently intended that the YFT will use the loan funds repaid to repay loans owing by it to Company X. The result of this is that: (a) Company X will have a comparatively minimal share capital account balance. This amount is reflective of Company X's current need for reduced capital, as it is intended that Company X should in due course no longer be required as a primary investing entity for the group. Accordingly, it is envisaged that Company X will, in due course, cease or substantively reduce its investment activities; and (b) funds will be available to the YFT for investments to be undertaken in its name, rather than in Company X. The proposed return of capital outlined above is a critical step in reducing Company X's investment role. It is not anticipated that the above dividend and capital return will affect the continuation of the pattern of dividends by Company X as seen in recent years.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 6. | Income Tax Assessment Act 1936 Division 6. | Income Tax Assessment Act 1936 Division 7A. | Income Tax Assessment Act 1936 section 44. | Income Tax Assessment Act 1936 section 45B. | Income Tax Assessment Act 1936 section 45C. | Income Tax Assessment Act 1936 section 97. | Income Tax Assessment Act 1936 section 99B. | Income Tax Assessment Act 1936 section 177A. | Income Tax Assessment Act 1936 section 177D. | Income Tax Assessment Act 1936 section 109J. | Income Tax Assessment Act 1936 section 109L. | Income Tax Assessment Act 1936 section 109T. | Income Tax Assessment Act 1936 section 109V. | Income Tax Assessment Act 1997 section 104-135. | Income Tax Assessment Act 1997 subdivision 202-C. | Income Tax Assessment Act 1997 section 202-5. | Income Tax Assessment Act 1997 section 202-40. | Income Tax Assessment Act 1997 section 202-45. | Income Tax Assessment Act 1997 section 960-120.

Reasons for decision: Summary: The component of the proposed distribution debited to the retained earnings account of Company X will be a frankable distribution within the meaning of subdivision 202-C of the ITAA 1997. | Detailed Reasoning - Detailed reasoning: 1. The term 'frankable distribution' is defined pursuant to section 202-40 of the ITAA 1997. It provides that a distribution is a frankable distribution to the extent that is not unfrankable under section 202-45 of the ITAA 1997. 2. Any component of the proposed distribution debited to the retained earnings account of Company X will be a distribution pursuant to section 960-120 of the ITAA 1997, on the basis that the amount will be a dividend under the ITAA 1997. 3. A distribution will be unfrankable if it falls within any of the circumstances listed in section 202-45 of the ITAA 1997. There is no specific circumstance listed within section 202-45 which would cause the component of the proposed distribution to be an unfrankable distribution. 4. On the basis of the information provided, Company X will have available frankable profits to pay any distribution immediately before the payment of the franked distribution. 5. Therefore, any component of the proposed distribution will constitute a frankable distribution as defined under subsection 202-40(1) of the ITAA 1997 satisfying the requirements of paragraph 202-5(b) of the ITAA 1997. | Summary: The Commissioner will not make a determination pursuant to subsection 45B(3) of the ITAA 1936 that section 45C of the ITAA 1936 applies to treat some or all of the capital component of the proposed distribution as unfrankable dividends. | Detailed Reasoning - Detailed reasoning: 6. Section 45B of the ITAA 1936 is an anti-avoidance provision, which, if it applies, allows the Commissioner to make a determination that section 45C of the ITAA 1936 applies to treat all or part of a capital benefit as an unfranked dividend. 7. Section 45B of the ITAA 1936 applies where certain capital payments are made to shareholders in substitution for dividends. Specifically, the provision applies where: • there is a scheme under which a person is provided with a capital benefit by a company (paragraph 45B(2)(a)); • under the scheme a taxpayer (the relevant taxpayer), who may or may not be the person provided with the capital benefit, obtains a tax benefit (paragraph 45B(2)(b)); and • having regard to the relevant circumstances of the scheme, it would be concluded that the person, or one of the persons, entered into the scheme or carried out the scheme or any part of the scheme for a purpose, other than an incidental purpose, of enabling the relevant taxpayer to obtain a tax benefit (paragraph 45B(2)(c)). Each of these conditions is considered below. Scheme 8. A 'scheme' for the purposes of section 45B of the ITAA 1936 is taken to have the same meaning as provided in subsection 177A(1) of Part IVA of the ITAA 1936. That definition is widely drawn and includes any agreement, arrangement, understanding, promise or undertaking, scheme, plan or proposal. 9. The arrangement involving the return of capital under the proposed distribution constitutes a 'scheme' for the purposes of section 45B of the ITAA 1936. Capital benefit 10. As the distribution will be recorded by a debit to Company X's share capital account, the YFT will be provided with a capital benefit as defined under paragraph 45B(5)(b) of the ITAA 1936. 11. Therefore for the purposes of paragraph 45B(2)(a) of the ITAA 1936 the YFT will be provided with a capital benefit by Company X. Tax benefit 12. Subsection 45B(9) of the ITAA 1936 explains that the relevant taxpayer obtains a tax benefit if, apart from section 45B, the tax payable due to the receipt of the capital benefit, then or in the future, is less than it would have been had the distribution been a dividend instead. 13. Ordinarily, a return of capital would be subject to the CGT provisions of the income tax law. Unless the amount of the distribution exceeds the cost base of the shares, there will only be a cost base reduction under CGT event G1 (section 104-135 of the ITAA 1997). It is only to the extent (if any) that the distribution exceeds the cost base of the shares that a capital gain arises. By contrast, a dividend would generally be included in the assessable income of a resident shareholder. Therefore, Company X shareholders will obtain a tax benefit from the return of capital. Relevant circumstances 14. For the purposes of paragraph 45B(2)(c) of the ITAA 1936, the Commissioner is required to consider the circumstances set out under subsection 45B(8) to determine whether any part of the scheme would be entered into for a purpose, other than an incidental purpose, of enabling a relevant taxpayer to obtain a tax benefit. 15. The test of purpose is an objective one. The question is whether, objectively, it would be concluded that a person who entered into or carried out the scheme, or any part of the scheme, did so for the purpose of obtaining a tax benefit for the relevant taxpayer in respect of the capital benefit. This purpose does not have to be the most influential or prevailing purpose, but it must be more than an incidental purpose. 16. Subsection 45B(8) of the ITAA 1936 lists a number of relevant circumstances which the Commissioner may have regard to in determining whether a person entered into or carried out a scheme for more than an incidental purpose of enabling a taxpayer to obtain a tax benefit. This list is specified to not be exhaustive. 17. The relevant circumstances under subsection 45B(8) of the ITAA 1936 cover both the circumstances of the company and the shareholders. 18. The factors within paragraphs 45B(8)(i) and 45B(8)(j) of the ITAA 1936, pertaining to the provision of ownership interests and demerger, are not relevant to the circumstances of this scheme. The relevant factors are those covered by the circumstances described in paragraphs 45B(8)(a) to (h) and (k) of the ITAA 1936. (a) Attribution to profits 19. Paragraph 45B(8)(a) of the ITAA 1936 refers to the extent to which a capital benefit is attributable to realised and unrealised profits of the company. Law Administration Practice Statement PS LA 2008/10 (PS LA 2008/10) at paragraph 61 specifies that 'attributable to' is concerned with determining whether there is a discernible connection between the distribution and the share capital or profits realistically available for distribution, including the profits of an associate of the company. The connection need not be that of a sole, dominant, direct or proximate cause and effect; a contributory causal connection is sufficient. 20. In objectively considering this relevant circumstance, regard must be had to the nature of contributed capital and profit together with the availability of each of them to Company X. It is important to note that the mere existence of profits will not automatically trigger the application of section 45B of the ITAA 1936; rather, the availability of profits is but one matter to be considered in the attribution inquiry imposed by paragraph 45B(8)(a) of the ITAA 1936. 21. In this case, the proposed distribution will be equal parts share capital and profits (retained earnings). That is, the proposed distribution will include a dividend component attributable to profits. In this case the amount of the Capital Component of the return of capital can be reasonably regarded as attributable to the share capital invested by the Company X shareholders. 22. This factor does not incline towards the requisite purpose. (b) Distribution culture 23. Paragraph 45B(8)(b) of the ITAA 1936 refers to the pattern of distribution of dividends, bonus shares and returns of paid up capital by the company. As mentioned above, Company X has consistently paid dividends in previous years. Also, it is anticipated that the proposed distribution will not change the recent pattern of distributions as dividends are expected to continue to be paid, despite the significant dividend component being paid as part of the proposed distribution. Further, the company will continue to have a significant amount of franking credits available for use in the future. This indicates that the purpose of the scheme is not to obtain a tax benefit. 24. This factor does not incline towards the requisite purpose. (c) Characteristics of shareholders 25. Paragraph 45B(8)(c) of the ITAA 1936 refers to whether the relevant taxpayer has capital losses that would be carried forward to a later income year, but for the scheme. Generally, a capital return would be favourable to a taxpayer with capital losses, in that any capital gains would result in a more favourable tax position than when compared to receiving an unfranked dividend. 26. In this case, neither the YFT nor Taxpayer Z have capital losses that would be utilised as a consequence of the proposed distribution being made. No capital losses would be able to be utilised against the significant dividend component in any case. 27. As such, this factor does not incline towards the requisite purpose. (d) Pre-CGT shares 28. Paragraph 45B(8)(d) of the ITAA 1936 refers to whether any of the ownership interests in the company were acquired, or taken to have been acquired, by the taxpayer prior to 20 September 1985. 29. None of the shares in Company X, nor the interests in the YFT are pre-CGT assets. Also, the pre-CGT status would not be relevant to the significant dividend component of the proposed distribution. 30. This factor does not incline towards the requisite purpose. (e) Non-residents 31. Paragraph 45B(8)(e) refers to whether the relevant taxpayer is a non-resident. 32. As all of the entities involved are Australian residents, this factor does not incline towards the requisite purpose. (f) Cost base 33. Paragraph 45B(8)(f) of the ITAA 1936 refers to whether the cost base is not substantially less than the value of the capital benefit. Where the cost base is similar or greater in value than the capital benefit provided, the relevant taxpayer would not be exposed to a capital gain where the provision of the capital benefit involves the subsequent cancellation of a share. 34. In this case, whilst the cost base of the YFT's shares in Company X is more than the amount of the proposed distribution to be debited to share capital, it is substantially less than the total amount of the proposed distribution and will not be affected by the significant dividend component of the payment. 35. This factor does not incline towards the requisite purpose. (g) Repealed (h) Interest held 36. Paragraph 45B(8)(h) of the ITAA 1936 refers to, when share capital or share premium is distributed, whether the interest held by the relevant taxpayer after the distribution is the same as it would be, had a dividend been paid instead. This relevant circumstance proceeds from the premise that when a dividend is paid the shareholder's interest remains unchanged, and that a distribution of capital made in similar circumstances may be performing the same function as a dividend and be made in substitution for it. 37. In this case the interest held by the relevant taxpayer (Taxpayer Z) will remain the limited interest of an object of a discretionary trust and is not affected by the payment being either a dividend or a distribution of share capital. 38. This factor does not incline towards the requisite purpose. (k) Matters in paragraphs 177D(2)(a) to 177D(2)(h) of the ITAA 1936 39. Paragraph 45B(8)(k) of the ITAA 1936 refers to the matters in paragraphs 177D(2)(a) to 177D(2)(h) of the ITAA 1936. These are matters by reference to which a scheme is able to be examined from a practical perspective in order to identify and compare its tax and non-tax objectives. These matters include, among other things, the form and substance of the scheme and its financial implications for the parties involved. 40. Paragraph 177D(2)(a) of the ITAA 1936 gives regard to the manner in which the scheme was entered into or carried out. In this case, significant capital has over the years become superfluous to entity needs due in part to changes in focus of investment, Company X generating its own profits for investment, and redundancies of certain entities as investment entities. Therefore, the return of capital is to be made for the purpose of returning this excess capital to the shareholders of Company X. 41. The return of capital will also be carried out in accordance with the provisions of the Corporations Act 2001, distributions will be made by the YFT in the ordinary manner and loans will be repaid in accordance with their terms to allow the parties' purposes to be achieved as outlined above. 42. Paragraph 177D(2)(b) of the ITAA 1936 gives regard to the form and substance of the scheme. The proposed distribution constitutes the form and the substance of the scheme. A payment effected by way of return of capital to reduce capital in the company and allow for the repayment of certain loans. The characterisation of the payment as dividend or share capital for tax purposes does not affect the substance of the payment. 43. Paragraph 177D(2)(c) of the ITAA 1936 gives regard to the time at which the scheme was entered into and the length of the period during which the scheme was carried out. The scheme is to be undertaken in the course of the restructuring of the business structure. 44. Paragraph 177D(2)(d) of the ITAA 1936 gives regard to the result that would be achieved under the Act, but for the operation of section 45B of the ITAA 1936. A capital return has the advantage of not being income in the shareholder's hands. The tax consequences of the scheme, apart from the application of section 45B, are outlined above. In particular, a tax liability will arise in respect of the dividend component of the proposed distribution. 45. Paragraph 177D(2)(e) of the ITAA 1936 gives regard to any change in the financial position of the relevant taxpayer that has resulted, will result, or may reasonably be expected to result, from the scheme. The Beneficiaries' financial position will improve as a result of the scheme to the extent that loans currently owing to the YFT can be repaid. 46. Paragraph 177D(2)(f) of the ITAA 1936 gives regard to any change in financial position of any person in connection with the relevant taxpayer, being a change that has, will, or may reasonably be expected to result from the scheme. The financial position of the YFT and Company X will remain largely neutral through the intended repayment of the respective loans, except that the YFT should itself have access to additional funds, rather than these being invested through Company X. It is noted that Company X 's assets consist largely of passive investments, rather than an active business. In this context, it is not necessary that the company maintain any significant amount of share capital for the benefit of third party creditors as described in PS LA 2008/10. 47. Paragraph 177D(2)(g) of the ITAA 1936 gives regard to any 'other' consequence for the relevant taxpayer, or for any person referred to in paragraph (f), of the scheme having been entered into or carried out. The scheme will facilitate the separation of the business interests of the Beneficiaries. 48. Paragraph 177D(2)(h) of the ITAA 1936 gives regard to the nature of any connection between the relevant taxpayer and any person referred to in paragraph (f). The parties are connected by a business relationship, which is in the process of ending. Consequently, the scheme is an ordinary business dealing in the context of a marriage breakdown. 49. From consideration of the factors contained in paragraphs 177D(2)(a) to (h) of the ITAA 1936 it is submitted that it could not be concluded that Company X will enter into or carry out the return of capital or any part of the arrangement for the purpose of enabling a taxpayer to obtain a tax benefit. The practical implications of the scheme are consistent with it being, in form and substance, a distribution of share capital and the tax benefit is incidental to the main or substantial purpose of the distribution proposed by the company. Conclusion 50. The Commissioner will not make a determination under subsection 45B(3) that section 45C applies to the whole or any part of the proposed distribution. | Summary: The component of the proposed Restructure Payment debited to the share capital account of Company X will give rise to CGT event G1 for YFT. | Detailed Reasoning - Detailed reasoning: 51. CGT event G1 will happen when Company X makes the return of share capital payment to a Company X shareholder in respect of a share that the shareholder owned at the Record Date and continued to own at the time of payment (section 104-135 of the ITAA 1997). 52. A Company X shareholder will make a capital gain if the return of share capital is more than the cost base of the shareholder's Company X share. The amount of the capital gain is equal to the excess (subsection 104-135(3) of the ITAA 1997). | Summary: CGT event G1 will apply to the YFT such that the cost base of the shares in Company X will be reduced at the time of the distribution. | Detailed Reasoning - Detailed reasoning: 53. As the return of share capital payment will be equal to or less than the cost base of the Company X share at the time of payment, the cost base and reduced cost base of the share will be reduced by the amount of the payment (subsection 104-135(4) of the ITAA 1997). | Summary: Division 7A of the ITAA 1936 will not apply to YFT in relation to the return of capital component or the dividend components under the proposed distribution. | Detailed Reasoning - Detailed reasoning: 54. Section 109J of the ITAA 1936 provides that a private company is not taken under Division 7A of the ITAA 1936 to pay a dividend because of the payment of an amount that discharges a pecuniary obligation. In this case, section 109J will be satisfied as the Restructure Payment discharges Company X's obligation under the Corporations Act 2001 (Cth) to pay an amount to YFT in respect of the return of capital and is not more than would be required to discharge this obligation if the parties had been dealing with each other at arm's length. 55. Subsection 109L(2) of the ITAA 1936 also provides that a private company is not taken under Division 7A of the ITAA 1936 to pay a dividend because of a payment the private company makes to an entity, to the extent that a provision of the ITAA 1936 has the effect that the payment would not be included in the entity's assessable income even though it would otherwise be included. 56. Subsection 44(1) of the ITAA 1936 includes in a shareholder's assessable income any dividends, as defined in subsection 6(1) of the ITAA 1936, paid to the shareholders out of profits derived by the company from any source (if the shareholder is a resident of Australia) and from an Australian source (if the shareholder is a non-resident of Australia). 57. The term 'dividend' in subsection 6(1) of the ITAA 1936 includes any distribution made by a company to any of its shareholders. However, paragraph (d) specifically excludes a distribution from the definition of 'dividend' if the amount of the distribution is debited against an amount standing to the credit of the share capital account of the company. 58. As the proposed return of capital is excluded from being assessable as a dividend due to the operation of subsection 6(1) of the ITAA 1936, it is also not assessable under Division 7A of the ITAA 1936 due to the operation of subsection 109L(2) of the ITAA 1936. 59. Section 109L of the ITAA 1936 will also be satisfied in relation to the dividend component of the proposed distribution as it will be included in the YFT's assessable income (i.e. that portion which comprises a frankable dividend). | Detailed Reasoning - Question 6: Division 7A of the ITAA 1936 will not apply to the proposed distributions from YFT to Taxpayer Z (as a Beneficiary of YFT), to be distributed as part of The Arrangement. | Detailed Reasoning - Detailed reasoning: Dividend component 60. Subsection 109T(3) of the ITAA 1936 provides that Division 7A of the ITAA 1936 does not operate if a payment from a company to an interposed entity is treated as a dividend. In this case, the dividend component of the distribution from Company X to YFT (the interposed entity) will be treated as a dividend. Therefore, Division 7A of the ITAA 1936 will not apply to the dividend component of the proposed distribution. Return of capital component 61. Subsection 109V(1) of the ITAA 1936 provides that if a target entity is paid an amount by a private company through an interposed entity, the private company is taken to have paid the amount to the target entity when the interposed entity makes the payment to the target entity. Therefore, Division 7A of the ITAA 1936 would apply to the payment, subject to the exclusions in Subdivision D of the ITAA 1936. 62. Section 109J of the ITAA 1936 provides that a private company is not taken under Division 7A of the ITAA 1936 to pay a dividend because of the payment of an amount that discharges a pecuniary obligation. In this case, section 109J will be satisfied as the distribution discharges Company X's obligation under the Corporations Act 2001 (Cth) to pay an amount to YFT in respect of the return of capital and is not more than would be required to discharge this obligation if the parties had been dealing with each other at arm's length. 63. Subsection 109L(2) of the ITAA 1936 provides that a private company is not taken under Division 7A of the ITAA 1936 to pay a dividend because of a payment the private company makes to an entity, to the extent that a provision of the ITAA 1936 has the effect that the payment would not be included in the entity's assessable income even though it would otherwise be included. 64. Subsection 44(1) of the ITAA 1936 includes in a shareholder's assessable income any dividends, as defined in subsection 6(1) of the ITAA 1936, paid to the shareholders out of profits derived by the company from any source (if the shareholder is a resident of Australia) and from an Australian source (if the shareholder is a non-resident of Australia). 65. The term 'dividend' in subsection 6(1) of the ITAA 1936 includes any distribution made by a company to any of its shareholders. However, paragraph (d) specifically excludes a distribution from the definition of 'dividend' if the amount of the distribution is debited against an amount standing to the credit of the share capital account of the company. 66. As the proposed return of capital is excluded from being assessable as a dividend due to the operation of subsection 6(1) of the ITAA 1936, it is also not assessable under Division 7A of the ITAA 1936 due to the operation of subsection 109L(2) of the ITAA 1936. Conclusion 67. For the reasons outlined above, Division 7A of the ITAA 1936 will not apply to the dividend component or return of capital component of the proposed distributions from YFT to Taxpayer Z (as a Beneficiary of YFT), to be distributed as part of The Arrangement. | Summary: The proposed distribution of Trust Capital to Taxpayer Z (as a beneficiary of the YFT) will be a return of corpus from YFT to Taxpayer Z, and therefore will not be assessable to Taxpayer Z under Division 6 of the ITAA 1936. | Detailed Reasoning - Detailed reasoning: 68. The component of the distribution to the Beneficiaries comprising the return of capital will be paid to Taxpayer Z (as a beneficiary of the YFT) from the capital of the YFT pursuant to the YFT Deed, credited against Beneficiary Accounts. This amount does not form part of the net income of the trust estate for the purposes of section 97 of the ITAA 1936. 69. Section 99B(1) of the ITAA 1936 includes within the assessable income of a beneficiary an amount being property of the trust estate that is paid to or applied for the benefit of the beneficiary during the income year. 70. Paragraph 99B(2)(a) of the ITAA 1936 excludes from the assessable income of a beneficiary receiving an amount from a trust estate, distributions in the form of corpus (except to the extent to which the distribution is attributable to amounts derived by the trust estate that, if they had been derived by a resident taxpayer, would have been included in the assessable income of that taxpayer of a year of income). 71. As such, section 99B(2)(a) of the ITAA 1936 will apply such that the return of capital component of the distribution will not be included in the assessable income of Taxpayer Z (as a beneficiary of the YFT).