ATO Interpretative Decision
ATO ID 2003/161
Income Tax
Trusts: Exempt beneficiary and the application of section 99AFOI status: may be released
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you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed.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
Does section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the income of a trust to which a beneficiary is presently entitled when the beneficiary is exempt from income tax?
Decision
No. Section 99A of the ITAA 1936 does not apply to the income of a trust to which a beneficiary is presently entitled when the beneficiary is exempt from income tax.
Facts
A trust is established for the benefit of a sole beneficiary.
The beneficiary has a vested and indefeasible interest in all of the income of the trust for an accounting period, regardless of whether or not the trustee determines to distribute it.
The beneficiary is exempt from income tax pursuant to Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997).
Reasons for Decision
Under section 99A of the ITAA 1936, the trustee of a trust estate is assessed on that part of the net income of the trust estate that is not included in the assessable income of a beneficiary in pursuance of section 97 of the ITAA 1936.
Section 97 of the ITAA 1936 provides that a resident beneficiary shall include in their assessable income all the income of a trust estate to which they are presently entitled.
As the beneficiary has a vested and indefeasible interest in all of the income of the trust, the beneficiary is presently entitled to all of the income of the trust estate and must include it in their assessable income.
If an exempt entity is covered by section 50-5 of the ITAA 1997, section 50-1 of the ITAA 1997 applies to exempt the ordinary and statutory income (that is, assessable income) of that entity from income tax.
As all of the trust income is first included in assessable income of the beneficiary under section 97 of the ITAA 1936, before becoming exempt income by virtue of section 50-1 of the ITAA 1997, there is no part of the income of the trust estate to which section 99A of the ITAA 1936 will apply.
Date of decision: 20 December 2002Year of income: Year ended 30 June 2003 Year ended 30 June 2004 Year ended 30 June 2005 Year ended 30 June 2006
Legislative References:
Income Tax Assessment Act 1936
section 97
section 99A
section 50-1
section 50-5 Related ATO Interpretative Decisions
ATO ID 2002/242
Keywords
Exempt entities
Exempt income
Present entitlement
Trust distributions
ISSN: 1445-2782
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