ATO Interpretative Decision
ATO ID 2001/70 (Withdrawn)
Income Tax
Proceeds of Life Insurance Policy: Trust IncomeFOI status: may be released
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The view presented in 2001/70 has been clarified in ATO ID 2004/263 and ATO ID 2004/264.This document incorporates revisions made since original publication. View its history and amending notices, if applicable.
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Issue
Whether the proceeds of a life insurance policy paid into a trust estate created for the benefit of children, as a result of the death of a person is excepted trust income for the purposes of Income Tax Assessment Act 1936 Division 6AA and assessable at individual rates under Income Tax Assessment Act 1936 subsection 98(1).
Decision
The income is excepted trust income and should be taxed under Income Tax Assessment Act 1936 subsection 98(1).
Facts
The trust was created for the benefit of children. The proceeds of a life insurance policy was paid into the trust following the death of one parent. The children are minors. In the relevant years, assessments issued to the trustee on behalf of each beneficiary. The income was assessed as eligible trust income.
The taxpayer objected to the assessments stating that the assessable income of the trust estate should be treated according to Income Tax Assessment Act 1936 subparagraph 102AG(2)(c)(iv). Accordingly, the beneficiaries should be assessed under Income Tax Assessment Act 1936 subsection 98(1) at individual rates.
Reasons For Decision
Income Tax Assessment Act 1936 Subparagraph 102AG(2)(c)(iv) states that excepted income arises from property transferred to a minor directly as the result of the death of another person and under a life insurance policy. In this case the proceeds were paid directly to the trustee by the insurance company.
Income Tax Assessment Act 1936 Subsection 102AG(2A) states that 'Paragraph (2)(c) ... does not apply unless the beneficiary of the trust concerned will, under the terms of the trust, acquire the trust property (other than as a trustee) when the trust ends.' A specific clause in the trust deed states that any of the children who attain the age of 18 will be entitled to a proportional interest in the trust fund. If any child does not attain this age then their interest will devolve to the other beneficiaries when they attain the age of 18.
It is considered that as the property was transferred to the trustee of a trust estate directly as a result of the death of a person and under the terms of a policy of life insurance and the requirement that the beneficiaries acquire the trust property when the trust ends has been met, the income is excepted trust income and should be taxed under Income Tax Assessment Act 1936 subsection 98(1).
Date of decision: 13 August 1998
Legislative References:
Income Tax Assessment Act 1936
Division 6AA
subsection 98(1)
subparagraph 102AG(2)(c)(iv)
subsection 102AG(2A)
Other References:
Explanatory Memorandum to Taxation Laws Amendment Bill (No.4) 1994
Keywords
Minor Beneficiaries
Trust Income
Trusts
ISSN: 1445-2782
| Date: | Version: | |
| 13 August 1998 | Original statement | |
| You are here | 26 March 2004 | Archived |