| Disclaimer This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law. You cannot rely on this record in your tax affairs. It is not binding and provides you with no protection (including from any underpaid tax, penalty or interest). In addition, this record is not an authority for the purposes of establishing a reasonably arguable position for you to apply to your own circumstances. For more information on the status of edited versions of private advice and reasons we publish them, see PS LA 2008/4. |
Edited version of your private ruling
Authorisation Number: 1012592511276
Ruling
Subject: 102AG(2)(c) trust - section 98 - minor beneficiary - present entitlement
Questions and Answers:
1. Will the Commissioner exercise his discretion so you, the trustee, are taxable under section 99 of the Income Tax Assessment Act 1936 (ITAA 1936) on income earned by your trust estate?
No.
2. Shall you, the trustee, be assessable on income earned by your trust estate under section 98 of the ITAA 1936?
Yes.
This ruling applies for the following periods:
Year ended 30 June 2006
Year ended 30 June 2007
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ending 30 June 2014
Year ending 30 June 2005
Year ending 30 June 2016
Year ending 30 June 2017
Year ending 30 June 2018
The scheme commences on:
1 July 20XX
Relevant facts and circumstances
In 20XX, the deceased died and was survived by his/her child, a minor. The deceased had made a binding nomination, nominating his/her child to receive 100% of his/her superannuation benefit.
The advice received from solicitors at the time was that the superannuation benefit could be paid to another person to hold on trust for the child and that a trust deed be prepared to govern this. As a result, your Trust was established and the funds from the superannuation fund were paid to this trust.
The trust is established for the sole benefit of the minor child. All the income derived by the trust since is income on the investment of this initial superannuation benefit. The capital of the trust will vest in the child when they attain 18 years of age.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 98
Income Tax Assessment Act 1936 Section 99
Income Tax Assessment Act 1936 Section 99A
Reasons for decision
Section 99 & 99A
A trustee will be assessable under section 99 or section 99A of the ITAA 1936 where no beneficiary is presently entitled to some or all of the net income of the trust estate.
Where a trust estate consists of property of a kind referred to in paragraph 102AG(2)(c) of the ITAA 1936, subsection 99A(2) of the ITAA 1936 provides it will be taxed at under section 99 of the ITAA 1997 if the Commissioner is of the opinion that it would be unreasonable that section 99A should apply.
Paragraph 102AG(2)(c) of the ITAA 1936 is about 'excepted trust income' that is derived from the investment of any property, transferred to the trustee, for the benefit of the beneficiary, directly as the result of the death of a person and out of a provident, benefit, superannuation or retirement fund.
For paragraph 102AG(2)(c) to apply, subsection 102AG(2A) provides the beneficiary of the trust concerned will, under the terms of the trust, must acquire the trust property (other than as a trustee) when the trust ends.
Section 98
Subsection 98(1) of the ITAA 1936 assesses the trustee on behalf of the beneficiary where the beneficiary is presently entitled and under a legal disability.
In Taxation Ruling IT 319, the Commissioner decided to accept the decision in the High Court of Australia case of Taylor v Deputy Federal Commissioner of Taxation (1969) 123 CLR 206 (Taylor), where it was decided the beneficiary, a minor, was presently entitled to income arising under a trust for accumulation, which directed the trust income to be accumulated and paid to the beneficiary when he reached 21 years of age or to pass to his personal representatives as part of his estate in the event of his earlier death.
In that case, his Honour said that "presently entitled" refers to an interest in possession in an amount of income that is legally ready for distribution so that the beneficiary would have a right to demand payment of it if he were not under a disability. Here, immediately upon the making of the settlement, the beneficiary became absolutely entitled to the income arising during his minority, although his personal enjoyment of it was postponed. Accordingly, he was presently entitled to the income accumulated in the subject year.
Paragraph 4 of IT 319 states the decision in Taylor should be applied only in cases where the facts are substantially the same. Its acceptance involves two propositions:-
1) …that present entitlement depends upon the legal availability for distribution of trust income in which the beneficiary has a vested interest in possession;
2) the beneficiary under a trust for accumulation is presently entitled to trust income if he has an absolute vested interest in possession to that income, notwithstanding that because of a disability (e.g., minority) he cannot obtain payment of it.
Where a trustee is taxable under section 98, they will be assessable at the same rate as an individual resident taxpayer, which includes receiving the benefit of the tax-free threshold.
Application of law in your case
In your case, your facts are substantially the same as those discussed in IT 319. Therefore, section 98 of the ITAA 1936 will apply to you, where the trustee will be assessable at the same rate as an individual resident taxpayer, which includes receiving the benefit of the tax-free threshold.