Edited version of your private ruling

Authorisation Number: 1012607779864

Ruling

Subject: Lodgment of income tax returns

Question 1

Based on the facts provided, and taking into consideration the ATO publications in relation to distributions, are you required to lodge a relevant income tax return if;

a. You do not have other assessable income or allowable deductions in addition to the distributions from the trust; or

b. You have more assessable income in addition to the distributions from the trust which may result in an additional tax liability; or

c. You have more allowable deductions which could lead to a tax refund?

Answer

As you are a beneficiary of a trust estate who is presently entitled to a share of the net income of the trust, but you are under a legal disability, you are not required to include this income in your income tax return for the relevant income year.

You will need to refer to the relevant Legislative Instrument to determine whether you are required to lodge an income tax return if you have other assessable income or allowable deductions.

Question 2

Is the requirement to lodge altered by the fact that you are under a legal disability and the trustee pays tax on behalf of the beneficiary in relation to the trust distributions?

Answer

As you are a beneficiary who is presently entitled to a share of the net income of the trust, but you are under a legal disability, you are not required to include this income in your income tax return for the relevant income year.

If, however, you were not under a legal disability then you would be assessed on your share of the net income of the trust estate to which you are presently entitled. You would be required to include this income in your income tax return if you were required to lodge.

Question 3

Is the requirement to lodge altered by the fact that income from distributions to which you have been deemed presently entitled is derived from a trust and not a direct equity holding?

Answer

If you derived your income directly from the source (eg dividends from a incorporated entity) and not as a beneficiary of a trust estate then you would be required to include this income in your income tax return if you were required to lodge.

This ruling applies for the following periods:

01/07/2012 to 30/06/2013

The scheme commences on:

01/07/2012

Relevant facts and circumstances

The following are the facts provided in your application for a private ruling;

• You are the beneficiary of a trust. The capital of the trust is invested to achieve capital growth and to provide an income flow.

• You are presently entitled to all income derived by the trust.

• You are under a legal disability.

• In the relevant income year, you do not have any other assessable income to report.

• Given the trustee has paid tax on the income of the trust (as you are presently entitled, but under a legal disability) you are in a nil tax position.

Relevant legislative provisions

Section 161 of the Income Tax Assessment Act 1936

Reasons for decision

Question 1

Summary

As you are a beneficiary of a trust estate who is presently entitled to a share of the net income of the trust, but you are under a legal disability, you are not required to include this income in your income tax return for the relevant income year.

You will need to refer to the relevant Legislative Instrument to determine whether you are required to lodge an income tax return if you have other assessable income or allowable deductions.

Detailed reasoning

Subsection 161(1) of the Income Tax Assessment Act 1936 (ITAA 1936) provides that;

Every person must, if required by the Commissioner by notice published in the Gazette, give to the Commissioner a return for the year of income within the period specified in the notice.

The Gazette in which the notice is published has been replaced by a Legislative Instrument. The Legislative Instrument "Lodgment of returns for the year of income ended 30 June 2013 in accordance with the Income Tax Assessment Act 1936, the Income Tax Assessment Act 1997, the Taxation Administration Act 1953, the Superannuation Industry (Supervision) Act 1993 and the Income Tax (Transitional Provisions) Act 1997 (F2013L00925)" (2013 Legislative Instrument) governs the lodgment of income tax returns for the 2013 income year.

The Legislative Instrument contains various tables and each table provides different types of income and whether a taxpayer is required to lodge an income tax return if he/she has derived that income.

ATO publications regarding whether an income tax return is required to be furnished are based on the requirements set out in the Legislative Instrument for the particular year.

Table C of the 2013 Legislative Instrument requires that all taxpayers (that are not full self-assessment taxpayers) whose taxable income for the year has exceeded $18,200 are required to lodge an income tax return.

Whilst you are a beneficiary of a trust estate and are presently entitled to the income of the trust, for the relevant income year you were under a legal disability. As a result of this, the trustee is assessed and liable to tax on this income under subsection 98(3) of the ITAA1936.

As this is not income to which you are assessed it does not form part of your taxable income for the relevant income year.

You have stated that you have no other assessable income for the relevant income year. As a result, your taxable income does not exceed $18,200 for the income year and you are not required to lodge an income tax return.

If your circumstances changed and you were to have other assessable income or allowable deductions then you would need to assess whether you are required to lodge an income tax return in accordance with the relevant Legislative Instrument.

Question 2

Summary

As you are a beneficiary who is presently entitled to a share of the net income of the trust, but you are under a legal disability, you are not required to include this income in your income tax return for the relevant income year.

If, however, you were not under a legal disability then you would be assessed on your share of the net income of the trust estate to which you are presently entitled. You would be required to include this income in your income tax return if you were required to lodge.

Detailed reasoning

As stated above under subsection 98(3) of the ITAA 1936, the trustee is assessed and liable to pay tax on the share of the net income of the trust estate where the beneficiary is presently entitled to the trust income but is under a legal disability.

In such a scenario as the trustee is assessed to this income, the beneficiary does not include this income in his/her tax return and therefore it does not form part of the beneficiary's taxable income.

If the beneficiary were not under a legal disability and is presently entitled to a share of the income of the trust estate, then subsection 97(1) of the ITAA 1936 provides the following;

Subject to Division 6D, where a beneficiary of a trust estate who is not under any legal disability is presently entitled to a share of the income of the trust estate:

(a) The assessable income of the beneficiary shall include:

(i) So much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was a resident; and

(ii) So much of that share of the net income of the trust estate as is attributable to a period when the beneficiary was not a resident and is also attributable to sources in Australia.

Therefore if you are presently entitled to a share of the net income of the trust estate and not under a legal disability then your share of the net income of the trust estate is to be included as assessable income in your tax return in accordance with subsection 97(1) of the ITAA 1936. Further, if your taxable income, as a result, exceeded $18,200 for the 2013 income year you would be required to lodge an income tax return.

Question 3

Summary

If you derived your income directly from the source (eg dividends from a incorporated entity) and not as a beneficiary of a trust estate then you would be required to include this income in your income tax return if you were required to lodge.

Detailed reasoning

As stated above, the income is derived by the trust and you are under a legal disability. As a result, under subsection 98(3) of the ITAA 1936 the trustee is assessed and liable to tax on this income. Consequently you do not include this income in your income tax return.

If you were not under a legal disability, and were presently entitled, you would be required, as a result of subsection 97(1) of the ITAA 1936, to include your share of the net income of the trust estate in your income tax return.

If you derived the income directly and there was no trust in place, then you would be required to include the income in your income tax return, if you met the requirements to lodge (eg. taxable income exceeding $18,200 for the 2013 income year).