| Disclaimer This edited version has been archived due to the length of time since original publication.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: 1012608121006
Ruling
Subject: Family trust elections
Question 1
Has the trustee for the X Trust made a valid family trust election (FTE), if the FTE names the late Mr/Mrs X as the specified individual and the FTE was made after his passing?
Answer
No
This ruling applies for the following period:
Income year ended 30 June 2007
The scheme commences on:
1 July 2006
Relevant facts and circumstances
This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.
During the income year ended 30 June 2008, the trustee of the X Trust made a FTE specifying Mr/Mrs X as the individual whose family group would be taken into account in relation to the election.
The income year ended 30 June 2007 was the specified income year.
Mr/Mrs X was deceased prior to the FTE being made.
Relevant legislative provisions
Acts Interpretation Act 1901 Section 2B
Income Tax Assessment Act 1936 Schedule 2F Section 272-75
Income Tax Assessment Act 1936 Schedule 2F Section 272-80
Income Tax Assessment Act 1936 Schedule 2F Subsection 272-80(3)
Income Tax Assessment Act 1936 Schedule 2F Section 272-95
Reasons for decision
Summary
The trustee for the X Trust has not made a valid FTE, as the FTE names Mr/Mrs X as the specified individual, and the FTE was made after his/her passing.
Detailed reasoning
A trust is a family trust at any time when an FTE is in force (section 272-75 of Schedule 2F to the Income Tax Assessment Act 1936 (ITAA 1936)).
The requirements for making an FTE are set out in section 272-80 of Schedule 2F to the ITAA 1936.
Subsection 272-80(3) of Schedule 2F to the ITAA 1936 requires that the trustee of the trust specify an individual whose family group will be taken into account in relation to the election. It is not clear from the wording of subsection 272-80(3) of Schedule 2F to the ITAA 1936 if the individual specified by the trustee can include someone who is deceased at that time.
'Individual' is not defined in the ITAA 1936.
Furthermore, 'individual' does not have the meaning given by subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997), as subsection 995-1(2) of the ITAA 1997 states that this meaning does not have affect for the purposes of the ITAA 1936 except as provided in the ITAA 1936. There is no such provision in the ITAA 1936 for 'individual'.
The term is defined in section 2B of the Acts Interpretation Act 1901 to mean a 'natural person'. The Macquarie Dictionary (Online) defines a natural person as an 'individual human being (as opposed to an artificial person)'.
There is no contrary intention discernible from the terms of section 272-80 of Schedule 2F to the ITAA 1936 or its surrounding context that 'individual' means other than a natural person. However, the definition can be seen as simply distinguishing legal persons according to how they have come into existence - naturally or by law.
We consider that the reference to 'individual' in subsection 272-80(3) of Schedule 2F to the ITAA 1936 should be interpreted having regard to its ordinary meaning in the context in which it is used.
The Macquarie Dictionary (Online) defines 'individual', when used as a noun, as '7. a single human being, as distinguished from a group'.
Having regard to the terms of section 272-80 of Schedule 2F to the ITAA 1936 and its surrounding context, we consider, as per the ATO view expressed in ATO Interpretative Decision ATO ID 2014/3 Income Tax Family Trust Election: individual specified in election is deceased when election made, that 'individual' means a living human being.
Amendments to the definition of 'family' in section 272-95 in Schedule 2F to the ITAA 1936 (contained in Tax Laws Amendment (2007 Measures No. 4) Act 2007) confirm this to be the correct interpretative approach. The amendments include as a family member any lineal descendant of a child, nephew or niece of the specified individual or the individual's spouse. As the individual specified in an FTE forms the point of reference for defining the family group, the size of the group could increase exponentially if a trustee were able to specify a deceased person. This would create the potential for the family group to be sufficiently large such that integrity measures, such as the family trust distribution tax which taxes distributions made outside of the family group, could be circumvented.
Accordingly, the trustee for the X Trust must have specified an individual who was alive at the time of making of the FTE in order for the FTE to be valid.