Private ruling: Commissioner's discretion - section 99A
Date of advice: 4 December 2024
Published: 20 January 2025
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ended 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: If the trustee is assessable on income to which no beneficiary is presently entitled, will the Commissioner exercise his discretion not to apply the provisions of section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) and assess the trustee under section 99 of the ITAA 1936? | A1: Yes.

Relevant facts and circumstances: The deceased and their spouse (person A) had several children who are now adults. On XX/XX/20XX, person A passed away leaving a final will and testament. At relevant times up to the time of person A's death: (a) person A owned the property; and (b) person A and others conducted a business on the property. The deceased and the children were the beneficiaries of person A's will. Person A's will appointed co-executors. Generally, the same business activities that were carried on upon the property up to the time of person A's death continued to be carried on upon the property after person A's death. Person A's will was the subject of court proceedings involving claims for further provision. On XX/XX/20XX, the deceased and the children entered into a Deed of Family Arrangement (the first deed) in respect of person A's will and estate. Relevantly, the first deed: (a) provided for person C to have an option to purchase the property at a price to be determined by the procedure it prescribed, and in any event to be sold, and for legacies to be funded in part by the proceeds of the sale of the property (the property sale); and (b) recited that person A's business interest formed part of the residue of person A's estate and therefore fell to the deceased as the residuary beneficiary of the estate. On XX/XX/20XX, the deceased passed away leaving a final will and testament. The children were the beneficiaries of the deceased's will. The deceased's will appointed co-executors. In general terms, the same business activities that were carried on upon the property up to the time of person A's death that had continued to be carried on upon the property after person A's death continued, again, to be carried on upon the property after the deceased's death. The issues in dispute between the parties can be summarised as follows: (a) A dispute with respect to the property sale. (b) A dispute with respect to person A's business interest, the deceased's business interest and the basis and identity or identities of the persons or entities by whom the business activities carried on upon the property since prior to person A's death have been carried on upon the property at various times since person A's death (collectively, the disputes). The disputes have prevented and are continuing to prevent the completion of the administration of person A's estate in accordance with the first deed and the completion of the administration of the deceased's estate. In order to resolve the disputes and permit the completion of the administration of person A's estate and the deceased's estate, the parties have agreed to settle the disputes and make provision for the completion of the administration of the deceased's estate and person A's estate on the terms set out in a second deed of settlement (the second deed). This decided various matters which in tum allow the outstanding tax returns to now be lodged. The estimated taxable income amounts and types of income are as follows: Year Amount Type 20XX $X X 20XX $X X 20XX $X X 20XX $X X 20XX $X X 20XX $X X. The deceased was not an object of a discretionary trust. The estate only consists of assets the deceased held, property that represents accumulations of income or capital from the deceased's assets and property from the sale of the deceased's assets. The estate has not made any loans to beneficiaries. The estate owes no unpaid present entitlements. No special rights or privileges have been conferred on any property of the estate. No money or property has been transferred to the estate.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 subsection 99A(2) | Income Tax Assessment Act 1936 subsection 99A(3)

Reasons for decision: Summary: As the deceased estate is not being used for the purpose of tax avoidance, it is appropriate for the Commissioner to exercise the discretion under subsection 99A(2) of the ITAA 1936 to assess the deceased estate under section 99 of the ITAA 1936 for the income years of the ruling. | Detailed Reasoning - Detailed reasoning: 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 years 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: The estate is a deceased estate that resulted from the will of the deceased, dated XX XXXX 20XX which satisfies the requirement of paragraph 99A(2)(a) of the ITAA 1936. 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 deceased's assets not all being dealt with because of protracted litigation. All of the estate's property has flowed from the deceased, that is, no property has been 'injected' into the estate. The trustees are the executors of a deceased estate and have exercised their powers under the will in a conventional manner (and not as a tax-avoidance device). 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 each of the income years throughout the ruling period. Therefore, the Commissioner's discretion will be exercised for the income years included in the ruling period.