Edited version of private advice

Authorisation Number: 1052227064977

Date of advice: 29 February 2024

Ruling

Subject: Commissioner's discretion - section 99A

Question

Will the Commissioner exercise the discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the trustee of the trust on income that no beneficiary is presently entitled to under section 99 of the ITAA 1936?

Answer

Yes.

This ruling applies for the following periods:

Year ending 20BB

Year ending 20CC

Year ending 20DD

Year ending 20EE

Year ending 20FF

The scheme commenced on:

1 July 20AA

Relevant facts and circumstances

The deceased passed away on XX XXXX 20XX.

The deceased did not have a valid will.

The deceased held a superannuation fund.

The trust was created on XX XXXX 20XX, with the beneficiary's surviving parent as trustee.

The beneficiary was born on XX XXXX 20XX.

The beneficiary is under a legal disability.

One of the deceased's parents submitted a claim to the superannuation fund for the superannuation payment.

The funds were divided up on payment, with the deceased's parent receiving **% of the superannuation payment and **% was placed in trust by the superannuation fund.

The latter amount was inputted into the trust's solicitors' account and after their fees were remitted, the remaining amount was submitted to the trust's bank account.

On XX XXXX 20XX the beneficiary's surviving parent was retired as trustee and another individual was appointed as new trustee.

The beneficiary is not presently entitled to trust income.

The assets of the trust only include the funds from the original superannuation payment, assets acquired from the investment of those funds, and the accumulation of income from the investment of those funds.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99

Income Tax Assessment Act 1936 section 99A

Income Tax Assessment Act 1936 section 102AG(2)

Income Tax Assessment Act 1936 subsection 99A(2)

Income Tax Assessment Act 1936 subsection 99A(3)

Reasons for decision

Summary

After consideration of the relevant factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) should apply to the trust in relation to the 20BB to 20FF income years.

Therefore, the Commissioner will exercise the discretion under subsection 99A(2) of the ITAA 1936 to allow section 99 of the ITAA 1936 to apply where the trustee of the trust is liable to pay tax on income to which no beneficiary is presently entitled for those income years.

Detailed reasoning

Commissioner's discretion under subsection 99A(2) of the ITAA 1936.

Section 99A of the ITAA 1936 applies to a trust unless the Commissioner, pursuant to subsection 99A(2) of the ITAA 1936, forms the opinion that it would be unreasonable for section 99A of the ITAA 1936 to apply in relation to the trust in relation to the particular year of income.

In exercising the discretion, the Commissioner will have reference to the text of the legislation itself, the intent or purpose of the legislation and relevant case law as they apply to the facts and circumstances of a particular case for the purpose of forming the required opinion under subsection 99A(2) of the ITAA 1936.

The types of trust in respect of which the Commissioner's discretion may be exercised are listed in paragraphs 99A(2)(a) to (d) of the ITAA 1936 and include a trust that consists of property of a kind referred to in paragraph 102AG(2)(c) of the ITAA 1936 (paragraph 99A(2)(d) of the ITAA 1936).

In forming the opinion for the purposes of subsection 99A(2) of the ITAA 1936 the Commissioner is required to have regard to the matter subsections 99A(3) of the ITAA 1936 as follows:

99A(3) In forming an opinion for the purposes of subsection (2):

(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.

Application to your situation

We have taken the following into consideration when determining whether the Commissioner's discretion will be exercised:

• The trust consists of property that was transferred to the trustee directly as the result of the death of a person and out of a superannuation fund. Consequently, it is a type of trust that qualifies for the discretion per paragraph 99A(2)(d) and subparagraph 102AG(2)(c)(v) of the ITAA 1936.
• The beneficiary is under a legal disability.
• The assets of the trust only include the funds from the original superannuation payment, assets acquired from the investment of those funds, and the accumulation of income from the investment of those funds.

Having regard to the above matters, and the legislated purpose of section 99A of the ITAA 1936 to prevent the use of trusts for tax avoidance, the Commissioner is of the opinion that it is unreasonable for section 99A of the ITAA 1936 to apply to the trust with respect to the 20BB to 20FF income years.

Therefore, the Commissioner will exercise the discretion for those income years.