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Edited version of your private ruling
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Ruling
Subject: Testamentary trust - exercise of section 99A discretion
Question and answer
Will the Commissioner exercise his discretion to assess undistributed income of a deceased estate under section 99 of the Income Tax Assessment Act 1936?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2011
Year ended 30 June 2012
The scheme commenced on:
1 July 2010
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 deceased passed away a number of years ago.
A life tenant was held by the deceased's spouse.
The life tenant entered an aged care facility and it was decided that the house would be sold and the proceeds would be invested on behalf of the deceased estate.
There was a dispute over the distributions and the funds could not be distributed.
Relevant legislative provisions:
Income Tax Assessment Act 1936 Section 99
Income Tax Assessment Act 1936 Section 99A
Income Tax Assessment Act 1936 Subsection 99A(2)
Income Tax Rates Act 1986 Subsection 12(6)
Income Tax Rates Act 1986 Subsection 12(9)
Income Tax Rates Act 1986 Sch10-PtI
Reasons for decision
Sections 99 and 99A of the ITAA 1936 apply to assess a trustee on income to which no beneficiary is presently entitled or income which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A.
Section 99A of the ITAA 1936 applies in relation to all trusts unless:
· the trust resulted from a will or codicil; subparagraph 99A(2)(a)(i)
· the trust resulted form an intestacy; subparagraph 99A(2)(a)(ii)
· the trust is bankrupt estate; paragraphs 99A(2)(b) and (c)
· the trust is a trust that consists of property referred to in paragraph 102AG(2)(c)
and the Commissioner forms the opinion that it would be unreasonable to apply section 99A in such circumstances.
The applicable rate of tax under section 99A of the ITAA 1936 is set in subsection 12(9) of the Income Tax Rates Act 1986 (ITRA 1986) at 47%, which is imposed from the first dollar of taxable income.
The favourable exercise of the Commissioner's discretion under subsection 99A(2) of the ITAA 1936 means the highest rate of income tax does not apply to trust estates resulting from a will, codicil, etc. These include both the estate of a deceased person and testamentary trusts established pursuant to the terms of a will, codicil or intestacy.
Pursuant to subsection 99(2) of the ITAA 1936, where no part of the net income of a resident trust estate:
· That is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97;
· In respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98; or
· That represents income that which a beneficiary is presently entitled that is attributable to a period when the beneficiary was not a resident and is also attributable to sources out of Australia;
the trustee shall be assessed and is liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident and were not subject to any deduction.
As the deceased estate was formed out a will and the Commissioner considers it would be unreasonable to apply section 99A of the ITAA 1936 in this case, income tax will be assessed to the trustee at individual rates under section 99 of the ITAA 1936.
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