ATO Interpretative Decision

ATO ID 2002/819

Income Tax

Excepted Trust Income - investment of personal injury compensation
FOI status: may be released

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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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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 the income the taxpayer receives from the Public Trustee as a result of the investment of a court awarded personal injury compensation amount, 'excepted trust income' pursuant to subsection 102AG(2) of the Income Tax Assessment Act 1936 ('ITAA 1936')?

Decision

Yes. The income the taxpayer receives from the Public Trustee as a result of the investment of a court awarded personal injury compensation amount is 'excepted trust income' pursuant to subsection 102AG(2) of the ITAA 1936.

Facts

The taxpayer, being less than 18 years of age, suffered a personal injury and was awarded a compensation amount by the courts as a result.

The Public Trustee invests the compensation amount until such time as the taxpayer attains the age of 18 years at which time the amount will be paid to the taxpayer at their request.

The taxpayer will receive the income resulting from the investment of the compensation amount prior to them attaining the age of 18 years.

The taxpayer does not meet the criteria to be an 'excepted person' for the purposes of Division 6AA of the ITAA 1936.

Reasons for Decision

Division 6AA of the ITAA 1936 deals with the income of certain children. Trust income that is included in assessable income under Division 6AA of ITAA 1936 is taxed at special rates as set out in the Income Tax Rates Act 1986.

However, certain trust income derived by a 'prescribed person' is excluded from the special rates where the income is 'excepted trust income' (section 102AG of the ITAA 1936). 'Excepted trust income' is included in the assessable income of the beneficiary and taxed at normal rates.

A person is a 'prescribed person' if they are less than 18 years of age on the last day of the year of income and are not an 'excepted person' (subsection 102AC(1) of the ITAA 1936.

As the taxpayer is less than 18 years of age and is not an 'excepted person' as defined in subsection 102AC(2) of the ITAA 1936, they are a 'prescribed person' for the purposes of Division 6AA of the ITAA 1936.

Sub-subparagraph 102AG(2)(c)(i)(B) of the ITAA 1936 includes as 'excepted trust income' any income derived by the trustee of the trust from the investment of compensation monies for personal injury awarded to the beneficiary. However, subsection 102AG(2A) of the ITAA 1936 excludes such income unless the beneficiary will acquire the trust property when the trust ends.

The money held by the Public Trustee on the taxpayer's behalf comprises funds received as compensation for personal injury. The income derived by the Public Trustee is income that has resulted from the investment of the compensation amount.

In accordance with sub-subparagraph 102AG(2)(c)(i)(B), the taxpayer's income is 'excepted trust income'. As the taxpayer is entitled to the compensation funds when they attain 18 years of age, the exclusion under subsection 102AG(2A) of the ITAA 1936 does not apply. Therefore, the income received by the taxpayer as a result of the investment of the court awarded personal injury compensation amount is 'excepted trust income' pursuant to subsection 102AG(2) of the ITAA 1936 and will be taxed at normal rates.

Date of decision: 11 April 2002

Year of income: Year ended 30 June 2000

Legislative References:
Income Tax Assessment Act 1936
   Division 6AA
   subsection 102AC(1)
   subsection 102AC(2)
   section 102AG
   subsection 102AG(2)
   sub-subparagraph 102AG(2)(c)(i)(B)
   subsection 102AG(2A)

Income Tax Rates Act 1986
1

Keywords
Children's income
Compensation for injury
Excepted income
Minor beneficiaries
Trust income

Siebel/TDMS Reference Number: DW433044; 1-A4EJEZL

Business Line: Private Groups and High Wealth Individuals

Date of publication: 22 August 2002
Date reviewed: 27 October 2016

ISSN: 1445-2782

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