Edited version of private advice

Authorisation Number: 1052072332433

Date of advice: 19 December 2022

Ruling

Subject: Commissioner's discretion - deceased estate

Question

For the purposes of subsection 99A(2) of the Income Tax Assessment Act 1936, is the Commissioner of the opinion that it would be unreasonable that section 99A should apply in relation to X Trust?

Answer

Yes

This ruling applies for the following period:

Income year ending 30 June 20YY

The scheme commences on:

DD MM YYYY

Relevant facts and circumstances

A (the deceased) died on DD MM YYYY.

By their Will, the deceased appointed his child, H, his child, E, and his solicitor, I, as his executors (the Executors) and they obtained probate for that Will.

The deceased had a third child, X, who had x children, Y and Z, both at that time minors.

X, Y, and Z commenced proceedings claiming that inadequate provision had been made for them in the deceased's Will. The proceedings were settled upon the terms of a Court Order.

Paragraph 2 of the Order establishes and sets out the terms and conditions of trusts called X Trust

Paragraph 2.5 of the Order sets out the powers of A in their capacity as Trustee for X Trust

In administering X Trust, the Trustee sold certain real estate and purchased a property in which X resides. The balance of the Trust fund was invested. In the years prior to and including the 20YY income year, income received from these investments has been used to pay trust expenses or distributed to X.

The property of X Trust, including cash used to acquire trust property, does not include any property acquired, or received, from any source other than the estate of the deceased.

At no time prior to this ruling has a person, directly or indirectly:

•                     transferred or lent money or property (including money) to, or conferred any benefits on X Trust; or

•                     conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate.

From 20YY income year, given X's age, the Trustee may accumulate the surplus income of X Trust rather than distributing it to X. This may continue until X's death.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99

Income Tax Assessment Act 1936 section 99A

Income Tax Assessment Act 1936 subsection 99A(2)

Income Tax Assessment Act 1936 subsection 99A(3)

Reasons for decision

Section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) applies relation to all trusts unless:

•                     the trust estate is of a kind listed in paragraphs 99A(2)(a) to (d), and

•                     the Commissioner of Taxation (Commissioner) is of the opinion that it would be unreasonable that section 99A (and thereby, the highest rate of tax) should apply in relation to that trust estate in relation to that year of income (subsection 99A(2)).

A trust estate that resulted from a will, or an order of a court that varied or modified the provisions of a will, is a trust estate listed in paragraph 99A(2)(a)(i) of the ITAA 1936.

In forming an opinion, for the purposes of subsection 99A(2), the Commissioner must consider the factors in subsection 99A(3) as follows:

(a)         the Commissioner shall have regard to the circumstances in which and the conditions, if any, upon which, at any time, property (including money) was acquired by or lent to the trust estate, income was derived by the trust estate, benefits were conferred on the trust estate or special rights or privileges were conferred on or attached to property of the trust estate, whether or not the rights or privileges have been exercised;

(b)         if a person who has, at any time, directly or indirectly:

(i)            transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or

(ii)           conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate whether or not the right or privilege has been exercised;

has not, at any time, directly or indirectly:

(iii)         transferred or lent any property (including money) to, or conferred any benefits on, another trust estate; or

(iv)         conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of another trust estate, whether or not the right or privilege has been exercised;

the Commissioner shall have regard to that fact; and

(c)         the Commissioner shall have regard to such other matters, if any, as he or she thinks fit.

X Trust was established by an order of the court that varied or modified the provisions of the Will of a deceased individual. As such, X Trust is a trust estate of a kind listed in subparagraph 99A(2)(a)(i) of the ITAA 1936, and the first dot point above is satisfied.

After considering the circumstances of X Trust with regard to subsection 99A(3) of the ITAA 1936, the Commissioner is of the opinion that it would be unreasonable that section 99A should apply in relation to that trust estate in relation to the year ended 30 June 20YY.