ATO Interpretative Decision
ATO ID 2002/673 (Withdrawn)
Income Tax
Exercise of the Commissioner's discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 - testamentary trustsFOI status: may be released
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This ATO ID does not adequately reflect the ATO viewThis 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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Is it appropriate for the Commissioner to exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) in order to assess the trustee of a testamentary trust under section 99 of the ITAA 1936 on the income of trust to which no beneficiary is presently entitled?
Decision
Yes. It is appropriate in the circumstances for the Commissioner to exercise his discretion to apply section 99 of the ITAA 1936 to the income of the testamentary trust to which no beneficiary is presently entitled.
Facts
A trust was established under the will of a deceased person where the beneficiaries are family members and a charitable organisation.
The trust is a discretionary trust.
The only assets of the trust are those that devolved on the trustee as a direct consequence of the will.
The estate of the deceased taxpayer has been fully administered.
Reasons for Decision
Section 99A of the ITAA 1936 provides that a special rate of tax will apply to certain trust income. The special rate of tax will apply to a share of trust income to which no beneficiary is presently entitled. The applicable tax rate is the highest marginal rate of tax for resident individuals.
However, subparagraph 99A(2)(a)(i) of the ITAA 1936 provides that the special rate of tax will not apply to a trust estate that resulted from a will if the Commissioner is of the opinion that it would be unreasonable for the special rate of tax apply to that trust income.
If the Commissioner is of the opinion that it would be unreasonable for the special rate of tax apply to the trust income, then more concessional rates of tax will apply under section 99 of the ITAA 1936.
In forming his opinion, the Commissioner must have regard to the matters listed in subsection 99A(3) of the ITAA 1936. These matters include situations where an attempt has been made to increase the assets of the trust by, for example, granting of special rights or privileges to the trust, the transfer of the property to it, or the making of loans to it.
In determining the weight to be given to the matters described in subsection 99A(3) of the ITAA 1936, Windeyer J has stated in Giris Pty Ltd v. FC of T (1969) 119 CLR 365; 69 ATC 4015; (1969) 1 ATR 3 that:
'The Commissioner is to ask himself whether it would be unreasonable that section 99A of the ITAA should apply to any particular trust estate. But the idea of reasonableness seems to be here amorphous....It does not clearly emerge from the Act in respect of what matter - or whose interest...he is to consider whether it would be reasonable or unreasonable to apply section 99A in the case of any particular trust estate. He is to have regard to certain stated matters; but what weight or influence each is to have is not made clear.....That [the Commissioner] has formulated certain considerations by which he is guided, and made them publicly known, may be important as showing that in the exercise of his statutory discretion he acts honestly, consistently and, as he thinks, in accordance with the legislative purpose. That purpose I take it is to enable the Commissioner to keep sec 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose.'
The testamentary trust was created from a deceased estate. There is no evidence that an attempt has been made to increase the assets of the trust.
In the circumstances, the Commissioner is of the opinion that it would be unreasonable to apply the special rate of tax under section 99A of the ITAA 1936 to the trust income to which no beneficiary is presently entitled. Accordingly, the Commissioner will exercise his discretion under subsection 99A(2) of the ITAA 1936 and assess the trust income under section 99 of the ITAA 1936.
Date of decision: 17 December 2001Year of income: Year ended 30 June 2001 Year ending 30 June 2002 Year ending 30 June 2003
Legislative References:
Income Tax Assessment Act 1936
section 99
section 99A
subsection 99A(2)
subparagraph 99A(2)(a)(i)
subsection 99A(3)
Case References:
Giris Pty Ltd v. FC of T
(1969) 119 CLR 365
69 ATC 4015
(1969) 1 ATR 3
Keywords
Commissioner's discretion
Testamentary trusts
ISSN: 1445-2782
| Date: | Version: | |
| 17 December 2001 | Original statement | |
| You are here | 25 February 2004 | Archived |