Edited version of private advice

Authorisation Number: 1052133999967

Date of advice: 10 July 2023

Ruling

Subject: Taxation of testamentary trust

Question

Based on the assumptions provided, would the Commissioner be of the opinion that it would be unreasonable to apply section 99A of the Income Tax Assessment Act 1936 in relation to the ABC Testamentary Trust estate in relation to the ruling periods?

Answer

Yes.

This private ruling applies for the following periods

Income year ended 30 June 20YY

Income year ended 30 June 20YY

Income year ended 30 June 20YY

Income year ended 30 June 20YY

Income year ended 30 June 20YY

The scheme commenced on:

DD MM YY

Relevant facts and circumstances

Mr S died on D MM YY.

Mr S's last will was dated DD MM 20YY (the Will).

The Executors were appointed as executors of the Will and trustees of Mr S's estate, jointly. In the Will, a reference to 'my trustees' refers to the Executors.

Clause X.1 of the Will provides for a gift bequest to PBT.

Clause X.2 of the Will provides for the distribution of one part of the residue of Mr S's estate to a trust of which PBT will be the Primary Beneficiaries if PBT survive Mr S by 30 days and attains the age of NN years.

Clause X.3 of the Will sets out instructions that apply if any of the Primary Beneficiaries are under the age of NN years at the date of Mr S's death.

Clause X of the Will sets out instructions in relation to distributions by the Executors to Primary Beneficiaries, of amounts that would otherwise be held on the trusts.

PBT is currently NN years of age.

ABC Testamentary Trust (ABCT Trust) was created by the Executors pursuant to clause X.3 of the Will.

The only assets of ABCT Trust were owned by Mr S. No person has transferred or lent property of any kind to, or conferred any benefits on, the ABCT Trust estate. No person has done anything so as to increase the assessable income of ABCT Trust estate beyond the income that is generated from assets of the trust that were previously Mr S's assets and passed to the ABCT Trust pursuant to the terms of the Will.

Relevant legislative provisions

Income Tax Assessment Act 1936

section 99

section 99A

subsection 99A(2)

subsection 99A(3)

Reasons for decision

Subsection 99A(2) of the ITAA 1936 gives the Commissioner discretion to assess the trustee of a trust that resulted from a will under section 99 in respect of an income year, rather than section 99A.

This discretion will be exercised if, on considering the matters in subsection 99A(3) in respect of the relevant income year, the Commissioner is of the opinion that it would be unreasonable for section 99A to apply in relation to the estate in relation to that income year.

Regarding the matters in subsection 99A(3) of the ITAA 1936, if during the income year the assets of the trust are increased by, for example, granting of special rights or privileges to the trust, the transfer of the property to it, or the making of loans, the Commissioner may refuse to exercise the discretion. The Commissioner will generally exercise the discretion under subsection 99A(2) where the trust's assets come directly from the assets of the deceased.

In your circumstances, ABCT Trust was established under the will of Mr S following their death. Since that time, the only assets of ABCT Trust were those previously owned by Mr S, together with accumulated income from those assets. There have been no assets added to, benefits conferred on, or amounts borrowed or lent by ABCT Trust since that time.

The Commissioner previously exercised the discretion in subsection 99A(2) of the ITAA 1936 in relation to the 20XX-XX and 20XX-XX income years as, on considering the factors in subsection 99A(2) in relation to your circumstances, the opinion was formed that

•         ABCT Trust was administered by the trustees in a manner consistent with an ordinary, traditional kind of testamentary trust, and

•         it would be unreasonable to apply section 99A in relation to ABCT Trust in respect of those years.

Although the Commissioner is not yet able to consider the matters in subsection 99A(3) of the ITAA 1936 in relation to the ruling periods, provided the assumption set out in the ruling apply, it is considered that the Commissioner would be of the opinion that it would be unreasonable to apply section 99A in relation to the ABCT Trust in relation to those years.