Government co-contributions: do trust beneficiaries have business income?

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)?

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.

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.

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.