ATO Interpretative Decision

ATO ID 2007/195

Superannuation

Government co-contributions: do trust beneficiaries have business income?
FOI status: may be released
  • The Facts and Reasons for Decision of this ATO ID have been amended to clarify the description of the operation of paragraph 6(1)(b) of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a beneficiary's share of the net income of a trust estate that carries on a business included in the beneficiary's income from carrying on a business for the purposes of subparagraph 6(1)(b)(ii) of the Superannuation (Government Co-contribution for Low Income Earners) Act 2003 (Co-contributions Act)?

Decision

No. A beneficiary's share of the net income of a trust estate is not included in the beneficiary's income from carrying on a business for the purposes of subparagraph 6(1)(b)(ii) of the Co-contributions Act.

Facts

An individual is the trustee of a trust as well as one of the beneficiaries of the trust. As the trustee, the individual carries on a business. The individual does not engage in any activities covered under subsection 6(2) of the Co-contributions Act. The individual, in their personal capacity, makes a contribution to a complying superannuation fund. The individual, as a beneficiary of the trust, has received a distribution of income from the trust.

Reasons for Decision

A person, who makes a contribution to a complying superannuation fund or retirement savings account for their own benefit, or for the benefit of their dependants in the case of their own death may be eligible under section 6 of the Co-contributions Act to receive a superannuation co-contribution payable by the Government. A criterion contained within paragraph 6(1)(b) of the Act is that 10% or more of the person's total income for the income year must be attributable to either or both of the following:

the person engaging in activities covered under subsection 6(2) of the Co-contributions Act; and/or
the person carrying on a business (within the meaning of the Income Tax Assessment Act 1997).

A person can be a beneficiary of a trust, the trustee of which carries on a business. Where that happens there is a question as to whether the person's share of the net income of the trust is income attributable to the person carrying on a business.

Since the decision of Starke J in the High Court of Australia case Doherty v. Federal Commissioner of Taxation (1933) 48 CLR 1; 2 ATD 272 (Doherty's case), it has been accepted that the beneficiaries of a trust that carries on a business are not themselves carrying on a business. This is so even where a beneficiary is also one of the trustees of the trust, as happened in that case.

In Doherty's case, the High Court of Australia was asked to determine whether the taxpayer, and the other beneficiaries of the deceased estate, could deduct a loss incurred by the estate against their other (non-trust) income. Although the taxpayer was, together with a company, the trustee of the deceased estate, the issue was whether the beneficiaries were carrying on a business. Starke J noted that the taxpayer did not carry on the business in her individual capacity. He concluded that the beneficiaries did not carry on the business either at law or in equity, and could not be treated as if they had carried it on.

Consequently, the person's share of the net income of the trust estate is not income from carrying on a business for the purposes of subparagraph 6(1)(b)(ii) of the Co-contributions Act.

Date of decision:  19 October 2007

Year of income:  Year ended 30 June 2008

Legislative References:
Superannuation (Government Co-contribution for Low Income Earners) Act 2003
   section 6
   paragraph 6(1)(b)
   subparagraph 6(1)(b)(ii)
   subsection 6(2)

Income Tax Assessment Act 1997
   subsection 995-1(1)

Case References:
Doherty v. Federal Commissioner of Taxation
   (1933) 48 CLR 1
   2 ATD 272

Keywords
Superannuation contributions
Superannuation government co-contribution

Siebel/TDMS Reference Number:  5763804; 1-5R3Y9TG; 1-JT71BGC

Business Line:  Superannuation

Date of publication:  2 November 2007
Date reviewed:  6 November 2019

ISSN: 1445-2782