Issue
Does section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to the income of a trust to which a beneficiary is presently entitled when the beneficiary is exempt from income tax?
Decision
No. Section 99A of the ITAA 1936 does not apply to the income of a trust to which a beneficiary is presently entitled when the beneficiary is exempt from income tax.
Facts
A trust is established for the benefit of a sole beneficiary.
The beneficiary has a vested and indefeasible interest in all of the income of the trust for an accounting period, regardless of whether or not the trustee determines to distribute it.
The beneficiary is exempt from income tax pursuant to Division 50 of the Income Tax Assessment Act 1997 (ITAA 1997).
Reasons for Decision
Under section 99A of the ITAA 1936, the trustee of a trust estate is assessed on that part of the net income of the trust estate that is not included in the assessable income of a beneficiary in pursuance of section 97 of the ITAA 1936.
Section 97 of the ITAA 1936 provides that a resident beneficiary shall include in their assessable income all the income of a trust estate to which they are presently entitled.
As the beneficiary has a vested and indefeasible interest in all of the income of the trust, the beneficiary is presently entitled to all of the income of the trust estate and must include it in their assessable income.
If an exempt entity is covered by section 50-5 of the ITAA 1997, section 50-1 of the ITAA 1997 applies to exempt the ordinary and statutory income (that is, assessable income) of that entity from income tax.
As all of the trust income is first included in assessable income of the beneficiary under section 97 of the ITAA 1936, before becoming exempt income by virtue of section 50-1 of the ITAA 1997, there is no part of the income of the trust estate to which section 99A of the ITAA 1936 will apply.