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Edited version of your written advice
Authorisation Number: 1012776958859
Ruling
Subject: Trust income
Question 1
Will the Commissioner exercise his discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the estate under section 99 of the ITAA 1936?
Answer
Yes.
Question 2
Will any income of the trust to which a minor beneficiary is entitled to be considered excepted income?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014 - year ended 30 June 2018
The scheme commences on
1 July 2013
Relevant facts and circumstances
An individual died suddenly and was survived by their spouse and children.
The individual did not leave a will and did not have a significant estate.
Their spouse and relative established a trust to hold assets for the benefit of the children.
The spouse and relative undertook fundraising activities to raise monies for the trust.
They utilised networks of the deceased and funds were contributed by the public (beyond family members).
They raised approximately $X
The purpose of the trust, as set out in the trust deed, is clearly defined.
All money of the trust must be applied to meet the education, medical and other needs of the children.
The trustee has the power to accumulate or allocate the income of the trust to the children.
Relevant legislative provisions
Income Tax Assessment Act 1936 Division 6AA
Income Tax Assessment Act 1936 section 99
Income Tax Assessment Act 1936 section 99A
Income Tax Assessment Act 1936 subsection 102AC(1)
Income Tax Assessment Act 1936 subparagraph 102AG(2)(c)(vii)
Reasons for decision
Question 1
The categories of trusts in respect of which the Commissioner has discretion to assess the trustee under section 99 of the ITAA 1936 rather than under section 99A of the ITAA 1936 are limited to:
• deceased estates
• certain bankrupt estates administered by the Official Receiver or a registered trustee, and
• trusts that consist of property as specified in paragraph 102AG(2)(c) of the ITAA 1936
Subparagraph 102AG(2)(c)(vii) of the ITAA 1936 allows for assessable income to be treated as excepted income when it is derived by the trustee of a trust from the investment of any property transferred to the trustee for the benefit of the beneficiary out of a public fund established and maintained for the relief of persons in necessitous circumstances.
The Explanatory Memorandum (EM) to the Income Tax Assessment Amendment Bill (No. 6) 1979 states the following:
…out of a public fund established and maintained exclusively for the relief of persons in necessitous circumstances, e.g., where, on the death of a person, a public appeal is made for the members of the deceased's family who are in real need…
Given the circumstances, the Commissioner will exercise his discretion to assess the income to which no beneficiary is presently entitled under section 99 of the ITAA 1936.
Question 2
Division 6AA of the ITAA 1936 ensures that special rates of tax and a lower tax free threshold apply in working out the basic income tax liability on taxable income, other than excepted income, derived by a prescribed person.
A prescribed person is defined in subsection 102AC(1) of the 1TAA 1936 to include any person, other than an excepted person, under 18 years of age at the end of the income year.
As discussed, subsection 102AG(2) of the ITAA 1936 states that 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:
(c) 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:
(vii) out of a public fund established and maintained exclusively for the relief of persons in necessitous circumstances
In this case, we have established that the monies are out of a public fund established and maintained exclusively for the relief of persons in necessitous circumstances. Therefore, income derived from these funds will be excepted income in relation to a minor beneficiary of the trust estate as per subsection 102AG(2) of the ITAA 1936.