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Edited version of your written advice
Authorisation Number: 1051384305774
Date of advice: 12 June 2018
Ruling
Subject: Commissioner’s discretion under section 99A of the Income Tax Assessment Act 1936
Question
Will the Commissioner exercise his discretion not to apply the provisions of section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) and assess the trust estate under section 99 of the ITAA 1936?
Answer
Yes
This ruling applies for the following periods:
Year ending 30 June 2017
Year ending 30 June 2018
Year ending 30 June 2019
The scheme commences on:
1 July 2016
Relevant facts and circumstances
The deceased passed away in the 2016 financial year.
Pursuant to the Last Will and Testament (the Will) of the deceased, a Testamentary Trust was established on their passing.
The purpose of the testamentary trust is to hold the trust funds on trust for the beneficiaries as per the Will.
The trustees of the Testamentary trust are the deceased’s child and the child’s spouse.
Letter of Directions were prepared by the deceased in 2006 and their wishes have been detailed as part of this ruling.
Therefore, in the 2017 financial year, the following assets (with associated cost base) were transferred from the deceased estate into the Testamentary Trust:
● Cash
● Shares in the private family company
● Portfolio of ASX listed shares and managed funds
No other amounts have been transferred to the Testamentary Trust other than from the deceased estate.
There are no special rights or privileges attached to the property of the Testamentary Trust.
The Testamentary Trust has not borrowed funds
As at 30 June 2017, the ages of the four grandchildren have been stated.
As such as at 30 June 2017, two of the beneficiaries were over 25 years of age and two of the beneficiaries were under 25 years of age.
For the 30 June 2017 year:
● The income of the Trust consisted of interest, franked and unfranked dividends and distributions from managed funds.
● The Trustees determined to accumulate the income for the 2017 year in the Testamentary Trust for the benefit of the beneficiaries.
● The Trustees have loaned an amount each to the two grandchildren aged over 25 years at 30 June 2017 to assist them with expenses (such as home mortgages).
Relevant legislative provisions
Section 99 of the Income Tax Assessment Act 1936;
Section 99A of the Income Tax Assessment Act 1936;
Subsection 99A(2) of the Income Tax Assessment Act 1936.
Reasons for decision
Sections 99 and 99A of the ITAA operate to tax trustees if there is part of the net income of a trust estate that is not taxed to a beneficiary under section 97 or the ITAA or to the trustee under section 98 of the ITAA.
Section 99A of the ITAA, which imposes a higher rate of tax, applies automatically unless the trust estate is of a type specified in section 99A(2) of the ITAA and the Commissioner considers that it would be unreasonable for section 99A of the ITAA to apply.
A trust estate that results from a will or intestacy is a type of trust estate in respect of which the Commissioner may form an opinion it would be unreasonable for the section to apply.
Section 99A(3) of the ITAA sets out factors which the Commissioner can consider in deciding that it would be unreasonable for section 99A of the ITAA to apply.
In forming an opinion for the purposes of subsection (2):
(a) the Commissioner shall have regard to the circumstances in which and the conditions, if any, upon which, at any time, property (including money) was acquired by or lent to the trust estate, income was derived by the trust estate, benefits were conferred on the trust estate or special rights or privileges were conferred on or attached to property of the trust estate, whether or not the rights or privileges have been exercised;
(b) if a person who has, at any time, directly or indirectly:
(i) transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or
(ii) conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate whether or not the right or privilege has been exercised;
has not, at any time, directly or indirectly:
(iii) transferred or lent any property (including money) to, or conferred any benefits on, another trust estate; or
(iv) conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of another trust estate, whether or not the right or privilege has been exercised;
the Commissioner shall have regard to that fact; and
(c) the Commissioner shall have regard to such other matters, if any, as he or she thinks fit.
After consideration of these factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA should apply in relation to that trust estate in relation to the relevant years of income. Accordingly section 99 of the ITAA will apply.
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