Edited version of private ruling

Authorisation Number: 1011700278234

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Ruling

Subject: Commissioners discretion to assess the trustee under section 99 of the Income Tax Assessment Act 1936

Question

Will the Commissioner exercise discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the net income of the trust estate to which no beneficiary is presently entitled under section 99 of the ITAA 1936?

Answer

No

This ruling applies for the following periods:

1 July 2009 to 30 June 2014

Relevant facts

The deceased passed away on a certain date and provided a will.

Prior to death the deceased received a settlement of monies.

The will provided that if a certain person survived the deceased by more than 30 days than that person be given the entire estate and appointed executor. As the person survived the deceased by more than 30 days they were sole beneficiary and executor of the estate.

After administration the residue of the estate was used to establish a discretionary trust at the direction of the sole beneficiary.

The primary beneficiaries of the discretionary trust are the children and are not under a legal disability.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 99.

Income Tax Assessment Act 1936 Section 99A.

Income Tax Assessment Act 1936 Paragraph 102AG(2)(c)

Reasons For Decision

Sections 99 and 99A of the ITAA 1936 apply to assess the trustee on income to which no beneficiary is presently entitled, which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A.

Subsection 99A(2) of the ITAA 1936 outlines the circumstances when the Commissioner may apply his discretion not to assess a trust using section 99A. Section 99A of the ITAA 1936 assesses the income of a trust where no beneficiary is presently entitled at the top marginal rate of tax. If the Commissioners discretion under section 99A(2) is exercised, the trust's income is taxed at a concessional rate of tax.  

Subsection 99A(2) of the ITAA 1936 gives the Commissioner a discretion to assess the trustee pursuant to section 99, rather than section 99A, where the following kinds of trust estates are involved:

(1) a trust estate that resulted from a will, a codicil, an intestacy or a court order varying the provisions of a will, a codicil or the operation of the intestacy provisions

(2) bankrupt estates, or

(3) trust estates that consist of property of a kind referred to in paragraph102AG(2)(c).

In this case, the trust estate has not resulted from a will, a codicil, an intestacy or a court order varying any of these items and is not a bankrupt estate. The trust estate has resulted from the sole beneficiary of the deceased estate using the residue to establish a discretionary trust with the children as primary beneficiaries. The will specified that the entire estate was to go to the sole beneficiary should they survive the deceased by 30 days.

A trust estate that consists of property of a kind referred to in paragraph 102AG(2)(c) is the third kind of estate that may be assessed in accordance with section 99 of the ITAA 1936.

The kind of property referred to in paragraph 102AG(2)(c) is a follows:

c) is derived by the trustee of the trust estate from the investment of any property transferred to the trustee for the benefit of the beneficiary:

(i) by way of, or in satisfaction of a claim for, damages in respect of:

(A) loss by the beneficiary of parental support; or

(B) personal injury to the beneficiary, any disease suffered by the beneficiary or any impairment of the beneficiary's physical or mental condition;

(ii) pursuant to any law relating to worker's compensation;

(iii) pursuant to any law relating to the payment of compensation in respect of criminal injuries;

(iv) directly as the result of the death of a person and under the terms of a policy of life insurance;

(v) directly as the result of the death of a person and out of a provident, benefit, superannuation or retirement fund;

(vi) directly as the result of the death of a person by an employer of the deceased person;

(vii) out of a public fund established and maintained exclusively for the relief of persons in necessitous circumstances; or

(viii) as the result of a family breakdown (see section 102AGA);

The discretionary trust was established as the result of the sole beneficiary of the deceased estate making a decision to transfer the residue to the trust estate for the benefit of the beneficiaries. The property that was transferred to the trustee for the benefit of the beneficiary did not result from property of a kind referred to in paragraph 102AG(2)(c) as listed above.

In this case, the Commissioner will not apply his discretion to assess the trustee under section 99 of the ITAA 1936. The trustee will be assessed on any income to which no beneficiary is presently entitled, which is retained or accumulated under section 99A of the ITAA 1936.