Edited version of private advice

Authorisation Number: 1052361095603

Date of advice: 12 February 2025

Ruling

Subject: Commissioner's discretion - section 99A

Question 1

If the trustee is assessable on income to which no beneficiary is presently entitled, would the Commissioner exercise his discretion not to apply the provisions of section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) and assess the trustee under section 99 of the ITAA 1936?

Answer 1

Yes.

This ruling applies for the following period/s:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

The Trust is a testamentary trust which resulted from the terms of the Last will and Testament of the deceased.

Clause X of the Will instructs for the creation of the Trust with X% of the residue of the estate to be held under the terms of the Trust. The terms on which the Trust's property are being held are contained in clause X of the Will.

The Trust is an Australian resident for tax purposes.

The deceased's property at date of death consisted of Australian real property, cash, public company shares and goods and chattels.

Public company shares owned by the deceased at date of death, to the value of X% of the residue of the estate, were transferred to the Trust on XX/XX/20XX.

All income to date of the Trust has been accumulated to the Trust fund.

The Trust has derived interest for the 20XX income year to date.

The Trust does not hold shares in private companies.

The Trust does not have any unpaid present entitlements.

No loans have been made to or by the Trust.

No money or property has been directly or indirectly transferred to the Trust.

The Trust is not a discretionary object in relation to another trust.

The Trust's property only consists of assets the deceased held, property that represents accumulations of income or capital from the deceased's assets and property resulting from the sale of the deceased's assets.

All property of the Trust is held for investment purposes and for the sole benefit of the beneficiaries under the terms of the Will.

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

Summary

As the testamentary trust is not being used for the purpose of tax avoidance, it would be appropriate for the Commissioner to exercise the discretion under subsection 99A(2) of the ITAA 1936 to assess the testamentary trust under section 99 of the ITAA 1936 for the 202X income year.

Detailed reasoning

Section 99A of the ITAA 1936 applies in the case of testamentary trusts 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 testamentary trust in relation to the particular year/s 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 estate 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 estate that resulted from a will (paragraph 99A(2)(a) 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) and (3A) 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

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

99A(3A) For the purposes of the application of paragraph (3)(a) in relation to a trust estate of the kind referred to in paragraph (2)(a), a reference in that first-mentioned paragraph to the trust estate shall be read as including a reference to the person as a result of whose death the trust estate arose.

Application to your situation

The testamentary trust was validly created under the terms of the Will, which satisfies the requirement of paragraph 99A(2)(a) of the ITAA 1936.

The assets of the testamentary trust have all originated from assets the deceased owned, that is, no assets have been 'injected' into the testamentary trust.

The terms of the testamentary trust allow the trustee to accumulate the trust's income.

The testamentary trust has been administered in a conventional manner.

There is no indication it has been administered for the purpose of tax avoidance.

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 would be unreasonable for section 99A of the ITAA 1936 to apply to the trust in respect of the income year ruled for.

Therefore, the Commissioner's discretion would be exercised for the 20XX income year if the trustee is assessable on income to which no beneficiary is presently entitled.