Edited version of private ruling

Authorisation Number: 1011799248760

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Ruling

Subject: Child Maintenance Trust

Question 1

If the obligated parent declares that they hold the property on trust for the Trust under an obligation to pay child support, and holds the property as trustee on the terms of the Trust, will this be accepted as a transfer of property to the obligated parent as trustee of the trust as required by section 102AG?

Answer

Yes

Question 2

Will income from the Trust distributed to the Children be excepted trust income under subsection 102AG(2) of the Income Tax Assessment Act 1936?

Answer

Yes

This ruling applies for the following periods:

Income Years ending 30 June 2011, 2012, 2013, and 2014

The scheme commences on:

1 July 2008

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The obligated parent is the biological father of two children.

The father separated from the mother of the children and has a maintenance obligation in respect of those children.

A decree absolute of dissolution of marriage has issued.

The father proposes the creation of a Child Maintenance Trust (CMT) for the benefit of the children.

A Binding Child Support Agreement (the agreement) pursuant to section 80C of the Child Support (Assessment) Act 1989, and a deed of trust for the Child Maintenance Trust, have been provided.

The agreement has been signed, dated and witnessed by both parents and certifications have been provided by the solicitors for both parents as to the independent legal advice both parents have received regarding this agreement.

The agreement concludes in respect of each child on that child's 18th birthday, or on the happening of a child support terminating event, as defined in section 12 of the Child Support (Assessment) Act, whichever is the sooner.

The father's maintenance obligations consist of

Payment of a set amount of child support per month to the mother. This amount is to be varied each year in line with the Consumer Price index.

Payment of further expenses as additional child support, being private school tuition fees until such time as each child completes secondary education.

The amounts above shall account for and represent 100 percent of any liability of the father pursuant to an administrative assessment of child support and be credited against such.

Under the agreement, the father proposes to transfer cash to the CMT.

That cash will be used by the Trustee of the CMT to invest in the purchase of units in a unit trust.

The units are currently owned by the trustee of a family trust, which is controlled by the father.

No provision in the agreement mentions a direction, agreement, commitment, or proposal to establish a CMT.

The trustee of the family trust, owns units in the unit trust. The unit trust earns income from the trustee of it supplying assets and services to a company carrying on a business.

The father, as trustee of the CMT, will hold the property on the terms of the CMT.

The trust deed

"Beneficiaries" is defined as meaning the beneficiaries named in or included as beneficiaries in the second schedule, as follows, and any other beneficiaries nominated or appointed pursuant to the terms of this deed.

"Fund" as defined means:

(a) the original sum of $10.00;

(b) all other moneys and property vested in the Trustee to be held upon the trusts of this Deed;

(c) all other property and moneys acquired by the Trustee for the purposes of this Deed;

(d) the property and investments and from time to time comprising the assets of the Fund but excluding any income derived from those assets; and

(e) any amount which is accumulated and added to capital.

"Perpetuity date" means the date determined in accordance with clause 25, being as follows:

the 79th anniversary date of this deed; or

any earlier date the trustee determines;

whichever occurs first.

Clause XX provides that

The Trustee:

(a) Subject to clause YY may in its absolute discretion at any time and from time to time up to and including the perpetuity date:

(i) distribute all or part of the net income to all the beneficiaries or to one or more of the beneficiaries to the exclusion of the other beneficiaries in whatever shares the Trustee decides; or

(ii) distribute all or such part of the net income for the advancement maintenance, education support or benefit of all of the primary beneficiaries, or one or more of them to the exclusion of the others, in whatever shares the Trustee decides; but

(b) may only distribute any additional tax income to the primary beneficiaries in equal shares

Clause Z is the default clause, as follows:

· If the Trustee does net determine to distribute or accumulate the whole of the net income, then the portion of the net income not distributed or accumulated will be held on trust for the primary beneficiaries who are living or in existence at 30 June in that year, and if more than one, as tenants in common in equal shares.

· In default of and subject to any exercise of any discretion to pay, transfer, apply or set aside or accumulate pursuant to any other provision of this Deed, the Trustee shall hold all of the Fund and the net income as at the perpetuity date upon trust for the primary beneficiaries in equal shares absolutely.

· if any primary beneficiary dies before attaining the age of 18 years the Trustee must pay transfer apply or set aside all of that primary beneficiary's capital entitlement in the Fund under clause 5.2 to the legal personal representatives of the estate of that beneficiary.

Clause V covers distribution of capital and advances:

· The Trustee may in its absolute discretion at any time and from time to time up to the perpetuity date pay transfer apply or set aside the whole or any part of the Fund to all the primary beneficiaries in equal shares as an advance against their capital entitlement in the Fund.

· The Trustee may pay transfer apply or set aside the whole or any part of the Fund as the Trustee may decide to or for the advancement maintenance education support or benefit of all the primary beneficiaries in equal shares.

Clause XX covers amendment and variation of beneficiaries, and includes the following:

· The Trustee may revoke, delete, or vary all or any of the trusts, powers or provisions declared or included in this Deed (as amended) and may at the same time declare or include any new or other trusts, powers or provisions concerning the Fund provided the Trustee must not exercise its powers under this clause:

(a) to confer upon the Settler any beneficial interests in any part of the Fund nor in the income from the Fund;

(b) in a way which infringes the law against perpetuities;

(c) to vary the beneficial interest of any person in respect of income of the Fund distributed to that person prior to the date of exercise of the power;

(d) to:

(i) appoint or remove of this Deed; or

(iii) remove or reduce the scope of any of the restrictions imposed under this clause 13.

The First Schedule to the Deed sets out 45 items regarding the trustee's investment powers.

Relevant legislative provisions

Income Tax Assessment Act 1936 paragraph 99A(2)(d)

Income Tax Assessment Act 1936 paragraph 102AG(2)(c)(viii)

Income Tax Assessment Act 1936 subsection 102AGA(2A).

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