Edited version of private ruling

Authorisation Number: 1011518082233

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Ruling

Subject: Commissioner's discretion under section 99 of the Income Tax Assessment Act 1936

Question and answer:

Will the Commissioner exercise the discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the income of the trust estate under section 99 ITAA 1936?

Yes.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commenced on:

1 July 2008

Relevant facts and circumstances

The deceased passed away a few years ago.

Due to circumstances beyond the executors control the estate has not yet been finalised.

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 Assessment Act 1936 Paragraph 102AG(2) (c).

Income Tax Rates Act 1986 Subsection 12(6).

Income Tax Rates Act 1986 Sch10-PtI.

Income Tax Rates Act 1986 Section 14.

Reasons for decision

The categories of trusts in respect of which the Commissioner has discretion to assess the trustee under section 99 of the Income Tax Assessment Act 1936 (ITAA 1936) rather than under section 99A of the ITAA 1936 are limited to:

- deceased estates;

- bankrupt estates; and

- trusts that consists of the following types of property as specified in subparagraph 102AG(2)(c) ITAA 1936- (subsection 99A(2) of the ITAA 1936).

As the Estate is a deceased estate of the 'ordinary and traditional' kind, has been in existence for more than a few years, whose assets have been distributed to the beneficiaries and there is no tax avoidance involved, the Commissioners discretion to assess the trustee under section 99 of the ITAA 1936 will be exercised.

Accordingly, the Commissioner will assess the net trust income retained by the Estate under section 99 of the ITAA 1936.

The rates of tax for trustees assessed under section 99 are found in subsection 12(6) of the Income Tax Rates Act 1986 (ITRA 1986), which directs attention to Schedule 10 of the Rates Act. Part 1 of Schedule 10 of the ITRA 1986 identifies two classes of trustees for the purpose of determining the rates of tax that are to apply.

In the first class are trustees who are liable to be assessed under section 99 of the ITAA 1936 in respect of resident trust estates of a deceased person where the income is derived in the year of death of the deceased or in any one of the following two years. These trustees are liable to pay tax at the rates applicable to resident individuals.

The second class of trustees identified in Part 1 of Schedule 10 of the ITRA 1986 comprises trustees liable to be assessed under section 99 of the ITAA 1936 in respect of income of a resident trust estate, other than the estate of a person who died fewer than three years before the end of the income year. The trustees in this class are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold of $6,000. When this is the case, section 14 of the ITRA 1986 states a reduced tax free threshold of $416 applies. On income between $416 and $594 the rate of tax applied is 50%, and for amounts between $594 and $30,000, the rate of 15% is applied (subclause 2(b) of Schedule 10 of the ITRA 1986).

There is no discretion available to the Commissioner as to whether Clause 1 or Clause 2 will apply and no extension can be granted to the three year period.