Tax Laws Amendment (2011 Measures No. 5) Act 2011 (62 of 2011)

Schedule 2   Interim changes to the taxation of trust income

Part 1   Main amendments

Income Tax Assessment Act 1936

1   Before section 95

Insert:

95AAA Simplified outline of the relationship between this Division, Division 6E and Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997

The following is a simplified outline of the relationship between this Division, Division 6E and Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997.

This Division sets out the basic income tax treatment of the net income of the trust estate. Generally:

(a) it has the result of assessing beneficiaries on a share of the net income of the trust estate based on their present entitlement to a share of the income of the trust estate; and

(b) it has the result of assessing the trustee directly on any residual net income; and

(c) as a collection mechanism, it has the result of assessing the trustee in respect of some beneficiaries, such as non-residents or those under a legal disability.

If the trust estate has capital gains, franked distributions or franking credits, this basic treatment is modified as described below.

Division 6E modifies the operation of this Division for the purpose of excluding amounts relevant to capital gains, franked distributions and franking credits from the calculations of assessable amounts under sections 97, 98, 99, 99A and 100.

Division 6E does not modify the operation of this Division (or any other provision of this Act) for any other purpose. For example:

(a) it does not modify the operation of this Division for the purposes of applying section 100A; and

(b) it does not modify amounts taxed in the hands of the trustee under Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997.

Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997 provide the corresponding taxation treatment for those capital gains, franked distributions and franking credits. Specifically:

(a) Subdivision 115-C of that Act has the effect that an amount corresponding to each of those capital gains is taxed in the hands of the beneficiaries of the trust (as a capital gain) and, if necessary, assessed to the trustee.

(b) Subdivision 207-B of that Act has the effect that an amount corresponding to each of those franked distributions is taxed in the hands of the beneficiaries of the trust and, if necessary, the trustee. It also has the effect that the entity in whose hands those distributions are taxed can take advantage of the relevant amount of related franking credits.

95AAB Adjustments under Subdivision 115-C or 207-B of the Income Tax Assessment Act 1997 - references in this Act to assessable income under section 97, 98A or 100

(1) Subsection (2) applies if an amount is included in the assessable income of a beneficiary of a trust estate because of Subdivision 115-C or 207-B of the Income Tax Assessment Act 1997.

(2) For the purposes of a provision of this Act (other than a provision mentioned in subsection (3)), treat the amount as being included in the beneficiary’s assessable income in relation to the net income of the trust estate under section 97, 98A or 100 (as the case requires).

(3) The provisions are as follows:

(a) sections 97, 98A (other than subsection 98A(2)) and 100 (other than subsections 100(2) and (3));

(b) sections 98, 99 and 99A;

(c) Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997.

(4) To avoid doubt, subsection (2) applies despite subsection 6(1AA).

95AAC Adjustments under Subdivision 115-C or 207-B of the Income Tax Assessment Act 1997 - references in this Act to liabilities under section 98, 99 or 99A

(1) Subsection (2) applies if an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 98 in respect of the beneficiary is increased because of Subdivision 115-C or 207-B of the Income Tax Assessment Act 1997.

(2) For the purposes of a provision of this Act (other than a provision mentioned in subsection (5)), treat the amount of the increase as being an amount in respect of which the trustee is liable to be assessed (and pay tax) under section 98 in respect of the beneficiary’s interest in or share of the net income of the trust estate.

(3) Subsection (4) applies if an amount in respect of which a trustee of a trust estate is liable to be assessed (and pay tax) under section 99 or 99A is increased because of Subdivision 115-C or 207-B of the Income Tax Assessment Act 1997.

(4) For the purposes of a provision of this Act (other than a provision mentioned in subsection (5)), treat the amount of the increase as being an amount in respect of which the trustee is liable to be assessed (and pay tax) under section 99 or 99A in respect of the net income of the trust estate.

(5) The provisions are as follows:

(a) sections 97, 98A (other than subsection 98A(2)) and 100 (other than subsections 100(2) and (3));

(b) sections 98, 99 and 99A;

(c) Subdivisions 115-C and 207-B of the Income Tax Assessment Act 1997.

(6) To avoid doubt, subsections (2) and (4) apply despite subsection 6(1AA).