Taxation Ruling IT 2358 - Income Tax : trust schemes with resident minor beneficiaries : assessing guidelines : determination of objections : settlement guidelines

What this ruling is about: This Ruling, which takes the place of previous National Office memoranda, provides assessing and settlement guidelines in respect of schemes which seek to exploit the zero rate step of the tax rates through the making of alleged trust distributions below or just above the relevant taxable threshold to resident minor beneficiaries. In these cases, the resident minor beneficiaries are never intended to receive the benefit of the purported distributions. 2. These schemes operate in a similar fashion to the non-resident beneficiaries schemes covered in Taxation Ruling No. IT 2344 but with resident minors as the purported income beneficiaries. Unlike the non-resident beneficiaries scheme, however, it was still open, up to 30 June 1983, for taxpayers to exploit the former tax-free threshold of $1040 in respect of eligible unearned income of resident minors. After that date it was still possible to exploit the $416 threshold in relation to the Division 6AA rates of tax. Another of these schemes sought to exploit the Division 6AA 'excepted person' exempt status of certain handicapped children. 3. Examination of these arrangements has revealed that, in many cases, there is reason to doubt that present entitlement to the trust income actually has been conferred on the resident minor beneficiaries. As with the non-resident beneficiary version, it is invariably the case that the amounts purportedly distributed to the resident minor beneficiaries are retained and used by the trustee, and neither the beneficiaries nor their guardians are usually informed of the purported entitlement to the trust income.


Ruling: Assessing Guidelines: 4. In determining the bona fides or otherwise of these arrangements for the purposes of assessment and determination of objections, regard should be had to the factors listed below. It should be noted that the factors are not necessarily exhaustive and that no particular factor is necessarily decisive; 5. Factors which may lead to a conclusion that the distribution to a resident minor beneficiary is genuine include: 6. Where, after consideration of the facts of a particular case, it is not possible to be satisfied on reasonable grounds that the beneficiaries purportedly benefiting from a distribution of the trust income were ever intended to receive the benefit of that income, the following assessment action is considered appropriate : | Additional Tax (Penalty): 7. Additional tax by way of penalty under the former sub-section 226(2) should be imposed and remitted in accordance with the general principles set out in Taxation Rulings No's IT 2012, IT 2028, IT 2043 and IT 2206. | Determination of Objections: 8. Objections should be disallowed where, after a consideration of all relevant factors, it is still not possible to be satisfied on reasonable grounds as to the bona fides of the arrangements allegedly conferring present entitlement. 9. Objections should, of course, be allowed in cases where it is decided on the total information available that the arrangements are genuine. | Settlement Guidelines: 10. The following settlement guidelines do not cover cases falling to be considered under the additional tax (penalty) provisions of the new Part VII, effective from 14 December 1984. 11. Settlement offers on behalf of the trustee and all relevant taxpayers may be accepted in respect of these schemes where they are made in the following terms : 12. In respect of assessments that have already issued in these cases, the basis of settlement described above will be available for 30 days after the date of issue of this Ruling. The due date for payment of assessments which have not yet issued will be the effective cut-off date for the receipt of settlement offers. Offers made and received after the appropriate date will be considered on their respective merits. | Recovery: 13. In cases where assessments under both section 99A and the default beneficiary basis have been raised, recovery action should be instituted only in respect of the assessments raised on the default beneficiary basis. Where, in terms of the trust deed, no genuine beneficiary is presently entitled to the income, recovery action should be pursued in respect of section 99A assessments issued to the trustee. COMMISSIONER OF TAXATION 27 August 1986




Date original memo issued: 5 December 1985


Legislative references: DIVISION 6 FORMER SUBSECTIONS 226(2) and (3)
Subject references: INCOME TAX AVOIDANCE TRUSTS WITH RESIDENT MINOR BENEFICIARIES