Private ruling: Assessable income
Date of advice: 4 March 2026
Published: 4 May 2026
Ruling period: Year ended 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX | Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the trust satisfy the conditions set out in subparagraph 102AG(2)(c)(viii) of the Income Tax assessment Act 1936 ? | A1: Yes. | Q2: Will the income distributed from the trust to the minor beneficiaries be considered 'excepted trust income'? | A2: Yes.

Relevant facts and circumstances: The Trust was set up in a previous year. A binding agreement (the agreement) was entered into. The agreement is between Individual 1 and Individual 2. Individual 3 and Individual 4 are the primary beneficiaries of the Trust. Individual 3 and Individual 4 are under the age of 18. The Perpetuity Date for the Trust is the date Individual 4 turns 18 or finishes high school, whichever comes first. Individual 1 and Individual 2 separated and have not yet formally divorced. Individual 1 and Individual 2 live separately at different residential addresses.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 102AG | Income Tax Assessment Act 1936 section 102AGA | Income Tax Assessment Act 1936 section 102AC

Reasons for decision: Summary: Division 6AA of the ITAA 1936 sets out special rules that apply in working out the basic income tax liability on the income of minors. These rules apply to income derived by a minor directly or indirectly, such as through a trust. The Division 6AA rules apply to any person classed as a prescribed person who receives eligible assessable income. Subsection 102AC(1) of the ITAA 1936 defines a prescribed person as a person who is under 18 years of age at the end of the financial year and is not an excepted person. Subsection 102AG(1) of the ITAA 1936 identifies when the special rules apply to trust income. If a beneficiary of a trust estate is a prescribed person, the special rules apply to so much of the beneficiary's share of the net income of the trust (net trust income) as the Commissioner considers is attributable to the assessable income of the trust estate that is not excepted trust income. Subsection 102AG(2) of the ITAA 1936 identifies a number of different categories of excepted trust income that apply for the benefit of the prescribed person. Subparagraph 102AG(2)(c)(viii) of the ITAA 1936 specifies that amounts included in the assessable income of a trust estate are excepted trust income in relation to a beneficiary, to the extent they are derived by the trustee of the trust estate from the investment of any property transferred to the trustee for the benefit of the beneficiary, as a result of a family breakdown. The previous subparagraph will not apply unless subsection 102AG(2A) of the ITAA 1936 is satisfied. The beneficiary of the trust must, under the terms of the trust, acquire the trust property when the trust ends. In addition, the beneficiary must not acquire the trust property in a capacity as a trustee. Paragraphs 29 to 46 of Taxation Ruling TR 98/4 Income Tax: child maintenance trust arrangements (TR 98/4) provide further information and examples on when a property has been transferred to the trustee for the benefit of a beneficiary. Section 102AGA of the ITAA 1936 clarifies when a transfer of property will be a result of a family breakdown. Subsection 102AGA(2) of the ITAA 1936 is relevant in this case, as Individual 1 and Individual 2 ceased to live together as spouses. A transfer of property to the trustee for the benefit of a minor beneficiary will be a result of a family breakdown if: ... (b) at least one of the persons: (i.) is the parent; or ... (iv.) (iv) has legal custody or guardianship; of the minor or the beneficiary; and (c) an order, determination or assessment of a court, person or body (whether or not in Australia) is made wholly or partly because the person has ceased to live as the spouse of the other person; and (d) the effect of the order, determination or assessment is that a person (whether one of the parents, the transferor or any other person) becomes subject to a legal obligation to maintain, transfer property to, or do some other thing for the benefit of, the minor or beneficiary or one of the parents of one of the spouses; and (e) the transferor transfers the subject property to the minor, or to the trustee for the benefit of the beneficiary, in giving effect to the legal obligation (including in discharging the legal obligation if it falls on someone else, and whether or not the legal obligation could have been given effect in some other way). The Explanatory Memorandum to the Taxation Laws Amendment Bill (No. 4) of 1994 explains the intention behind paragraph 102AGA(2)(c) of the ITAA 1936. It states: 2.33 The third requirement is that an order, determination or assessment of a court, person or body is made wholly or partly because the parties have ceased to live together on a genuine domestic basis [new paragraph 102AGA(2)(c)]. The requirement is not restricted to orders, determinations etc. made in Australia. The intention of this requirement is to include all obligations arising not only by way of court order but by operation of law (for example, an administrative assessment under the [ Child Support (Assessment) Act 1989 ]). ... The trust's specified beneficiaries are children who are under the age of 18. The child will continue to be prescribed persons in a financial year under section 102AC of the ITAA 1936, up until they turn 18 years of age. Under the Court Order, Individual 2 is subject to a legal obligation to pay Trust an amount of annual child support payments for their children. The legal obligation will last until the youngest child turns 18 years of age or finishes high school. Under clause 4 of the trust, the specified beneficiaries will acquire the remaining income, capital, property or benefits of the trust when the trust ends. The specified beneficiaries will not acquire the property in a capacity as a trustee. Clause 5 of the trust deed makes it certain that the child cannot be excluded as the specified beneficiary. The purpose of the trust is to facilitate the satisfaction of Individual 2's maintenance obligation. In this case, any income up to the amount of the legal obligation that the trust derives from the investment of that property, which has been transferred to the trust for the benefit of the child and as a result of a family breakdown, will satisfy the excepted trust income condition under subparagraph 102AG(2)(c)(viii) of the ITAA 1936. Any income paid to beneficiaries other than the minors subject to the maintenance obligation would not qualify as excepted trust income.