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Edited version of private ruling
Authorisation Number: 1011644019699
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Subject: Trust income
Questions
1. Will the entity be required under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936) to include an amount in its assessable income in connection with the receipt of trust income that was previously assessed to the trustee under section 99A of the ITAA 1936?
2. Will the entity be required to credit its franking account in connection with the receipt of trust income from the trustee pursuant to section 205-15 of the Income Tax Assessment Act 1997 (ITAA 1997)?
3. Will the entity be required to debit its franking account in connection with the receipt of trust income from the trustee pursuant to section 205-30 of the ITAA 1997?
Answers
1. No, the entity will not be required under subsection 99B(1) of the ITAA 1936 to include an amount in its assessable income in connection with the receipt of trust income that was previously assessed to the trustee under section 99A of the ITAA 1936.
2. No, the entity will not be required to credit its franking account in connection with the receipt of trust income from the trustee pursuant to section 205-15 of the ITAA 1997.
3. No, the entity will not be required to debit its franking account in connection with the receipt of trust income from the trustee pursuant to section 205-30 of the ITAA 1997.
This ruling applies for the following period:
Year ended 30 June 2011
Relevant facts and circumstances
The entity receives income from a trust, which has been assessed to the trustee of that trust under section 99A of the ITAA 1936. In relation to that income, the Trustee has claimed the benefit of the attached franking credits in accordance with part 3-6 of the ITAA 1997.
Relevant legislative provisions
Income Tax Assessment Act 1936 subsection 98B(1)
Income Tax Assessment Act 1936 subparagraph 98B(2)(c)(ii)
Income Tax Assessment Act 1997 section 205-15
Income Tax Assessment Act 1997 section 205-30
Does Part IVA apply to this ruling?
Part IVA of the ITAA 1936 is a general anti-avoidance rule that can apply in certain circumstances if you or another taxpayer obtains a tax benefit in connection with an arrangement and it can be concluded that the arrangement, or any part of it, was entered into or carried out by any person for the dominant purpose of enabling a tax benefit to be obtained. If Part IVA applies the tax benefit can be cancelled, for example, by disallowing a deduction that was otherwise allowable.
We have not fully considered the application of Part IVA of the ITAA 1936 to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part.
If you want us to rule on whether Part IVA of the ITAA 1936 applies we will first need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply.
For more information on Part IVA of the ITAA 1936, go to our website www.ato.gov.au and enter 'part iva general' in the search box on the top right of the page, then select: Part IVA: the general anti-avoidance rule for income tax.
Reasons for decision
Issue 1
Subsection 99B(1) of the ITAA 1936 includes an amount of trust property paid to or applied for the benefit of a beneficiary in the beneficiary's assessable income. However, subparagraph 99B(2)(c)(ii) of the ITAA 1936 reduces the amount included under subsection 99B(1) of the ITAA 1936 by any amounts which the trustee of the trust estate is or has been assessed and liable to pay tax in pursuance of sections 98, 99 or 99A of the ITAA 1936.
Therefore, pursuant to subparagraph 99B(2)(c)(ii) of the ITAA 1936, the entity will not be required under subsection 99B(1) of the ITAA 1936 to include in its assessable income the trust income it received from the trustee as the trustee has been assessed on that trust income in pursuance of section 99A of the ITAA 1936.
Issue 2
The table contained in subsection 205-15(1) of the ITAA 1997 sets out the various events that can give rise to a franking credit in an entity's franking account. As none of the items in the table in subsection 205-15(1) of the ITAA 1997 applies to the entity, it will not be required to credit its franking account in connection with the receipt of trust income.
Issue 3
The table contained in subsection 205-30(1) of the ITAA 1997 sets out the various events that can give rise to a franking debit in an entity's franking account. The receipt of trust income by the entity does not trigger any of the events outlined in subsection 205-30(1) of the ITAA 1997. Therefore, the entity will not be required to debit its franking account with respect to the receipt of trust income pursuant to section 205-30 of the ITAA 1997.