Edited version of private advice

Authorisation Number: 1052056136182

Date of advice: 9 November 2022

Ruling

Subject: Commissioner's discretion - section 99A

Question

Will the Commissioner exercise discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the net income of the trust estate to which no beneficiary is presently entitled, under section 99 of the ITAA 1936?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away in 20XX.

The deceased's will directed for funds to be held in trust for their children until they turned 21 years of age.

A testamentary trust was created for each child as per the will.

The funds held in each of the testamentary trusts are solely from the deceased estate. The testamentary trusts have not borrowed funds or purchased any additional assets.

There is no beneficiary presently entitled to the income of the testamentary trusts for XXXX, XXXX or XXXX until they each turn 21.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99

Income Tax Assessment Act 1936 section 99A

Reasons for decision

Sections 99 and 99A of the ITAA 1936 apply to assess a trustee on income to which no beneficiary is presently entitled or income which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A of the ITAA 1936.

Section 99A applies in relation to all trusts unless:

•         the trust resulted from a will; subparagraph 99A(2)(a)(i)

•         the trust is bankrupt estate; paragraphs 99A(2)(b) and (c)

•         the trust is a trust that consists of property referred to in paragraph 102AG(2)(c)

and the Commissioner forms the opinion that it would be unreasonable to apply section 99A in such circumstances.

Subsection 99A(2) of the ITAA 1936 outlines the circumstances when the Commissioner may apply his discretion for section 99A not to apply. The relevant part of subsection 99A(2) of the ITAA 1936 states that the discretion may be exercised where a trust estate resulted from a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil. The discretion is exercised where the Commissioner is of the opinion that it would be unreasonable for section 99A of the ITAA 1936 to apply.

Consequently, the favourable exercise of the Commissioner's discretion under subsection 99A(2) of the ITAA 1936 means the highest rate of income tax does not apply to trust estates resulting from a will, codicil, etc. These include both the estate of a deceased person and testamentary trusts established pursuant to the terms of a will.

Having regards to the circumstances the Commissioner will exercise the discretion to assess the income of the trust in accordance with section 99 of the ITAA 1936.