Edited version of private advice

Authorisation Number: 1051922373103

Date of advice: 15 November 2021

Ruling

Subject: Excepted income

Question 1

Are the income benefits paid to you from the Work Cover Queensland excepted income under subsection 102AE (2) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

Yes.

Question 2

Are all earnings generated by the trust from investing the Workers Compensation proceeds (both lump sum and periodic Workcover payments) considered "excepted trust income" when distributed to the specified beneficiaries during their minority?

Answer

Yes, any income derived from the investment of monies received from Workcover are also considered Excepted Assessable Income and taxed at normal marginal rates.

Question 3

Does the transfer of assets from the trust to the beneficiaries at the end of the trust constitute a CGT event?

Answer

Yes, the Lump Sum Dependant Payment/s received as a result of the parents's death, is neither Ordinary or Statutory Income due to subsection 118-37(1) of the Income Tax Assessment Act 1997 which disregards any capital gain or loss made where the amount relates to compensation or damages you receive for any wrong, injury or illness you or your relative suffers personally. Therefore, the Lump Sum Dependant Payment is not assessable and does not need to be declared in your Tax Return.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

29 October 20XX

Relevant facts and circumstances

The deceased passed away leaving no Will. The deceased is survived by the partner and four children: Child, Child 2, Child 3, and child 4 ("the Specified Beneficiaries").

All children are under 18 years of age.

Worker Cover Queensland (WCQ) required the entitlements to be paid in trust to the children whilst they are minors.

A Trust was established by Deed.

Under subclause 3.2 of the Deed, the Trustee does not have the power to add new Beneficiaries.

Clause 10 of the Deed provides the Trustee powers to amend the Trust subject to the restrictions specified in the Deed.

Under the Deed the Trustee is restricted to add capital to the Trust unless it's from the original workers compensation decision.

WCQ confirmed the Child 1 as totally dependant.

WCQ assessed Child 1 as being entitled to a lump sum payment.

WCQ assessed Child 1 as being entitled to an additional lump sum payment.

WCQ assessed Child 1 as being entitled to a quarterly back payment entitlement.

WCQ assessed Child 1 as being entitled to ongoing quarterly entitlement each week.

The Trust Deed established Child 1 as a Specified Beneficiary.

Under clauses 4 and 5 of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child 1.

The funds for Child 1 are quarantined in a separate account

WCQ confirmed the Child 2 as totally dependant.

WCQ assessed Child 2 as being entitled to a lump sum payment.

WCQ assessed Child 2 as being entitled to an additional lump sum payment.

WCQ assessed Child 2 as being entitled to a quarterly back payment entitlement.

WCQ assessed Child 2 as being entitled to ongoing quarterly entitlement each week.

The Trust Deed established Child 2 as a Specified Beneficiary.

Under clauses 4 and 5 of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child 2.

The funds for Child 2 are quarantined in a separate account.

WCQ confirmed the Child 3 as totally dependant.

WCQ assessed Child 3 as being entitled to a lump sum payment.

WCQ assessed Child 3 as being entitled to an additional lump sum payment.

WCQ assessed Child 3 as being entitled to a quarterly back payment entitlement.

WCQ assessed Child 3 as being entitled to ongoing quarterly entitlement each week.

The Trust Deed established Child 3 as a Specified Beneficiary.

Under clauses 4 and 5 of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child 3.

The funds for Child 3 are quarantined in a separate account

WCQ confirmed the Child 4 as totally dependant.

WCQ assessed Child 4 as being entitled to a lump sum payment.

WCQ assessed Child 4 as being entitled to an additional lump sum payment.

WCQ assessed Child 4 as being entitled to a quarterly back payment entitlement.

WCQ assessed Child 4 as being entitled to ongoing quarterly entitlement each week.

The Trust Deed established Child 4 as a Specified Beneficiary.

Under clauses 4 and 5 of the Deed, the Trustee must apply as absolutely and beneficially entitled without any exercise of discretion, according to the capital and income accounts for Child 4.

The funds for Child 4 are quarantined in a separate account

Relevant legislative provisions

Income Tax Assessment Act 1936 section 102AE (2)

Income Tax Assessment Act 1936 section 102AG (2A)

Income Tax Assessment Act 1936 section 102AG (8)

Income Tax Assessment Act 1997 section 118-37