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Edited version of your private ruling
Authorisation Number: 1012512417160
Ruling
Subject: Commissioner's discretion
Questions and answers:
Will the Commissioner exercise his discretion to apply section 99 of the Income Tax Assessment Act 1936 to the trust?
Yes.
This ruling applies for the following period:
1 July 2012 to 30 June 2016.
The scheme commenced on:
1 July 2012.
Relevant facts and circumstances:
The trust) is a testamentary trust set up and administered under the terms and conditions set forth in the last will and testament of the deceased.
None of the beneficiaries of the trust are presently entitled to any of the income of the trust.
The assets of the trust consist solely of assets owned by the deceased at his time of death and transferred to the trust under the terms and conditions of the deceased's last will and testament.
Relevant legislative provisions:
Income Tax Assessment Act 1936 Section 99
Income Tax Assessment Act 1936 Section 99A
Reasons for decision
Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1936.
The net income of a trust to which no beneficiary is presently entitled is taxed in the hands of the trustee. The applicable tax rate depends on whether the income is assessed under section 99 or 99A. Initially, such income falls for consideration under section 99A.
Section 99A provides that a special rate of tax will apply to trust income to which no beneficiary is presently entitled unless the trust estate has resulted from a will, in which case the Commissioner may determine that it would be unreasonable for the special rate of tax to apply to that trust income.
If the Commissioner forms the opinion that it would be unreasonable for the special rate of tax under section 99A to apply to the trust income, then more concessional rates of tax will apply under section 99 of the ITAA 1936.
In forming his opinion, the Commissioner must have regard to the matters listed in subsection 99A(3). Essentially, the Commissioner will consider the circumstances and conditions upon which:
· property (including money) is acquired by or lent to the trust estate,
· income is 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, and
· any other matter the Commissioner considers relevant.
As a general rule, where the trust estate has been established with assets directly from the deceased estate under the terms of a will and there is no obvious attempt to increase the assets of the trust for the purpose of avoiding tax, the Commissioner will exercise his discretion and assess the trust income to which no beneficiary is presently entitled under section 99.
Conclusion
Considering the facts of this case, the Commissioner is of the opinion that it would be unreasonable to apply the special rate of tax under section 99A to the trust income to which no beneficiary is presently entitled. Accordingly, the Commissioner will exercise his discretion and assess that income under section 99.