Edited version of private advice

Authorisation Number: 1052162005605

Date of advice: 29 September 2023

Ruling

Subject: Commissioner's discretion - section 99A

Question

Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the net income of the testamentary trust to which no beneficiary is presently entitled under section 99 of the ITAA 1936 for the year ended 30 June 2023?

Answer

Yes.

The testamentary trust (the trust) has been established in accordance with the deceased's will. The Commissioner accepts that the factors adverse to granting the discretion listed in subsection 99A(3) of the ITAA 1936 are not present in the trust's case, therefore, the Commissioner will exercise his discretion to tax the income of the trust under section 99 of the ITAA 1936 for the year ended 30 June 2023.

This ruling applies for the following period:

Year ended 30 June 20xx

The scheme commenced on:

1 July 20xx

Relevant facts and circumstances

The deceased died, leaving an estate containing income-producing assets.

The deceased executed a will prior to the date of death.

The deceased was an Australian resident for tax purposes.

The deceased's will appointed an executor, and a testamentary trust (the trust) was established for the deceased's relatives.

The trust is only made up of the deceased's assets, which were transferred into the trust in accordance with the deceased's will.

No property will be transferred into the trust that is not sourced from the deceased's estate in accordance with the will.

No specific rights of privileges have been conferred or attached to assets of the estate.

The only assets of the trust are shares in a company (the company).

Since the creation of the trust, the shares have been held solely for the benefit of the trust's beneficiaries.

There are two classes of shares in the company.

The first class of shares have rights to capital and interest in the assets on winding up of the company.

The second class of shares have no rights to capital or interest in the assets on wind up and are only entitled to dividends.

The trust owns a significant proportion of each of the classes of shares.

There have been no dividends declared to shareholders of either class of shares from the deceased's death until a recent income year.

In the relevant income year the trust received a distribution of fully franked dividends.

The trust is an Australian resident for tax purposes.

There is no beneficiary currently entitled to the income of the trust.

A loan has never been made to or by the trust.

The beneficiaries of the testamentary trust are Australian residents for tax purposes.

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)