Tax Laws Amendment (2007 Measures No. 3) Act 2007 (79 of 2007)

Schedule 3   Capital gains of testamentary trusts

Income Tax Assessment Act 1997

2   At the end of Subdivision 115-C

Add:

115-230 Assessing capital gains of resident testamentary trusts

Purpose

(1) The purpose of this section is to allow a trustee of a resident testamentary trust to make a choice that has the effect that the trustee will be assessed on *capital gains of the trust in situations where:

(a) the gains would otherwise form part of a share of the net income of the trust estate that would be included in the assessable income of a beneficiary who could not benefit from them; or

(b) the trustee would otherwise be liable to tax on the gains on behalf of such a beneficiary under section 98 of the Income Tax Assessment Act 1936.

Trusts for which choice can be made

(2) A trustee can only make a choice under this section in relation to a trust estate:

(a) that results from:

(i) a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil; or

(ii) an intestacy or an order of a court that varied or modified the application, in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate; and

(b) that is, in the income year in respect of which the choice is made, a resident trust estate within the meaning of Division 6 of Part III of the Income Tax Assessment Act 1936.

Circumstances in which choice can be made

(3) If:

(a) apart from this section:

(i) a share of the net income of a trust estate that is attributable to *capital gains would be included in the assessable income of a beneficiary for an income year under section 97 of the Income Tax Assessment Act 1936; or

(ii) a trustee would, on behalf of a beneficiary, be assessed and liable to pay tax for an income year under section 98 of the Income Tax Assessment Act 1936 in respect of a share of the net income of a trust estate that is attributable to capital gains; and

(b) the beneficiary does not have a vested and indefeasible interest in trust property representing that share; and

(c) trust property representing that share has not been paid to or applied for the benefit of the beneficiary;

the trustee may, no later than the deadline in subsection (5), make a choice that subsection (4) applies in respect of the beneficiary’s share.

Consequences if trustee makes choice

(4) These are the consequences if the trustee makes a choice that this subsection applies in respect of a beneficiary’s share:

(a) for the purposes of sections 97, 98A and 100 of the Income Tax Assessment Act 1936, the share is taken not to be included in the assessable income of the beneficiary;

(b) the trustee is not assessed, and is not liable to pay tax, in respect of the share under section 98 of the Income Tax Assessment Act 1936.

Note 1: Because of these consequences in relation to sections 97 and 98 of the Income Tax Assessment Act 1936, the trustee will be assessed on the beneficiary’s share under section 99A or (at the Commissioner’s discretion) 99 of that Act.

Note 2: Section 115-215 does not apply in relation to an amount to which this subsection applies.

Deadline for making choice

(5) The deadline for the purposes of subsection (3) is:

(a) the day 2 months after the last day of the income year; or

(b) a later day allowed by the Commissioner.

Note: This deadline is an exception to the general rule about choices in section 103-25.