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Edited version of private ruling
Authorisation Number: 1011602878465
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Ruling
Subject: Income - excepted net income
Are the investment earnings from monies from a deceased estate held in trust for a minor beneficiary excepted income?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commences on:
1 July 2009
Relevant facts and circumstances
The rulee is currently under the age of 18 years. The rulee received gifts of money which have been invested on their behalf by their parent who is the applicant for this ruling.
The money has come from several sources including:
· money left to the rulee from a deceased estate
· gifts made to the rulee by relatives.
The money is currently held in trust by the rulee's parent in a bank savings account styled 'Parent's name in trust for child's name'.
Under the terms of the relevant will, each child received a certain amount, which was to be paid to their parent or guardian for the benefit of the child if the child was under 18.
The executor of the Will is the rulee's parent who will manage the rulee's shares of the estate because the rule is less than 18 years of age.
The rulee is not an 'excepted person' for the purposes of Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936).
Relevant legislative provisions
Income Tax Assessment Act 1936 Subsection 102AC(2)
Income Tax Assessment Act 1936 Subsection 102AE(1)
Income Tax Assessment Act 1936 Subsection 102AE(2)
Income Tax Assessment Act 1936 Subsection 102AG(1)
Income Tax Assessment Act 1936 Subsection 102AG(2).
Reasons for decision
Summary
Income from the investment of funds derived from a deceased estate is excepted income.
Detailed reasoning
Division 6AA of the ITAA 1936 sets out special rules that apply in working out the tax payable on the income of a minor. A person to whom the special rules apply is called a 'prescribed person' which means they are not an 'excepted person' as defined by subsection 102AC(2) of the ITAA 1936 and they are under 18 years of age.
Subsection 102AE(1) of the ITAA 1936 provides that Division 6AA of the ITAA 1936 applies to 'so much of the assessable income of the person of the year of income' as is not 'excepted assessable income'.
In similar a manner, subsection 102AG(1) of the ITAA 1936 provides that Division 6AA of the ITAA 1936 applies to 'so much of the share of the beneficiary of the net income of the trust estate of the year of income' as is attributable to the assessable income of the trust estate that is not, in relation to that beneficiary, 'excepted trust income'.
'Excepted assessable income' is defined in subsection 102AG(2) of the ITAA 1936 and includes:
· income derived by the minor from the investment of any property they inherit from a deceased estate, and
· income derived from any capitalised amounts of such earnings.
Again, in similar manner, 'excepted trust income' is defined in subsection 102AG(2) and includes:
· assessable income of a trust estate derived from the investment of any property that devolved to the trust from a deceased estate to the benefit of the beneficiary, and
· income derived from any capitalised amounts of such earnings.
In contrast to such income, which arises from property inherited through a will or intestacy, any income derived from amounts given to a child by a living person or given to a trustee to hold on the child's behalf will not be 'excepted assessable income' or 'excepted trust income'.
The rulee in this case is not an 'excepted person' and he is under 18 years of age therefore his income may be subject to the special rules of Division 6AA of the ITAA 1936.
In the case of the bank accounts managed on behalf of the rulee by their parent, only a certain proportion of the interest income earned will be 'excepted assessable income' or 'excepted trust income' as the case may be. That proportion will be determined by how much of the original amount - the starting amount for each account - came from the conversion of the original amount which the rulee received from the deceased estate. This income will be subject to the ordinary individual tax rates for the year of income.
On the facts as provided, all the rest of the income earned by the savings accounts will be subject to the special tax rates applicable to income assessed under Division 6AA of the ITAA 1936. This is true whether the income is considered as earned directly by the child or as income of a trust to which the child is beneficially entitled.
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