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Edited version of private ruling
Authorisation Number: 1011712782221
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Ruling
Subject: Trust income
Question
Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936), to apply section 99 of the ITAA 1936 on income retained by the trust?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2010
Year ending 30 June 2011
Year ending 30 June 2012
Year ending 30 June 2013
Year ending 30 June 2014
The scheme commenced on
1 July 2009
Relevant facts and circumstances
The Trust was established by a club for the legacy of the beneficiary's late father who died unexpectedly.
The Trust is a discretionary trust.
The beneficiary is a minor.
The funds were raised by the local club and family members and invested in the Trust to be maintained for the benefit of the beneficiary's future welfare and education costs.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 99.
Income Tax Assessment Act 1936 Section 99A.
Income Tax Assessment Act 1936 Subsection 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.
If section 99A of the ITAA 1936 is considered not to apply, then the trustee is assessed under section 99 of the ITAA 1936 as if the income were that of an individual.
Section 99A of the ITAA 1936 applies in relation to all trusts unless:
· the trust is a deceased estate
· the trust is a bankrupt estate
· the trust is a trust that consists of property referred to in paragraph 102AG(2)(c) of the ITAA 1936
The Commissioner then must form the opinion that it would be unreasonable to apply section 99A in such circumstances.
Subsection 99A(2) of the ITAA 1936 restricts the categories of trust estate in respect of which the Commissioner has discretion to assess the trustee pursuant to section 99 of the ITAA 1936 to the above types of trust estates only.
Paragraph 102AG(2)(c) of the ITAA 1936 states that:
Subject to this section, an amount included in the assessable income of a trust estate is excepted trust income in relation to a beneficiary of the trust estate to the extent to which the amount: 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
The facts in your case show that the trust was established for the benefit of a minor. The trust funds comprise of donations by the public through a local club. The trust was set up for the sole intention and purpose to provide for the welfare and education of the principal beneficiary.
It is concluded from the facts in your case that the trust is not of a type outlined in subsection 99A(2) of the ITAA 1936.
The fund was not established as a result of a will, codicil, intestacy or court order in relation to intestacy. Nor did the Trust assets originate from a bankrupt estate.
The circumstances described in subsection 102AG(2)(c) of the ITAA 1936 do not apply to this trust. The most applicable part of the subsection is the exception relating to a Trust established out of a public fund established and maintained exclusively for the relief of persons in necessitous circumstances. This subsection however is not applicable because although the funds were received from members of the public, the funds did not come out of a public fund.
As the trust does not fall within the types described in subsection 99A(2) of the ITAA 1936 the Commissioner has no discretion to apply section 99 of the ITAA 1936.
Therefore section 99A of the ITAA 1936 will apply to any income of the trust that no beneficiary is presently entitled.