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Edited version of your written advice
Authorisation Number: 1012930233191
Date of advice: 18 December 2015
Ruling
Subject: Section 99A(2) discretion for a testamentary trust
Question 1
Is the Commissioner of the opinion that it would be unreasonable for section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to apply to the net income of the trust?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2015
Year ending 30 June 2016
The scheme commences on:
The scheme has commenced
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 died on a date in 201X. On a date in 201Z her executors declared the estate fully administered and that they held the deceased's residuary estate on trust for the residuary beneficiaries under their will, as tenants in common.
There are a number of residuary beneficiaries below the age of 18, the relatives of the deceased.
The will of the deceased that created the trust deemed that the beneficiaries were not to receive their interest in the estate until they reach a particular age. Until that point they will not be presently entitled to their interests.
Consequently, the beneficiaries are not presently entitled to any of the net income of the trust for the relevant years.
The trust capital consists of the only the residue of the deceased's estate. This consists of money on deposit and the deceased's former main residence, which has been rented to third parties at market rates.
Relevant legislative provisions
Section 99 of the Income Tax Assessment Act 1936
Section 99A of the Income Tax Assessment Act 1936
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 of the ITAA 1936.
Section 99A of the ITAA 1936 applies in relation to all trusts unless:
• the trust resulted from a will; subparagraph 99A(2)(a)(i),
• 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.
Subsection 99A(2) of the ITAA 1936 outlines the circumstances when the Commissioner may apply his discretion for section 99A not to apply. The relevant part of subsection 99A(2) of the ITAA 1936 states that the discretion may be exercised where a trust estate resulted from a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil. The discretion is exercised where the Commissioner is of the opinion that it would be unreasonable for section 99A of the ITAA 1936 to apply.
Consequently, 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.
Having regards to the circumstances the Commissioner will exercise the discretion to assess the income of the trust in accordance with section 99 of the ITAA 1936.
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