Operation of section 99B: trust income included in the assessable income of the beneficiary by section 97 but not declared in the beneficiary's income tax return

Will an amount constituting property of a trust estate, paid to a resident beneficiary, be included in the assessable income of the beneficiary under subsection 99B(1) of the Income Tax Assessment Act 1936 (ITAA 1936) if the amount is included in the beneficiary's assessable income under section 97 of the ITAA 1936?

No. An amount constituting property of a trust estate paid to a resident beneficiary will not be included in their assessable income under subsection 99B(1) of the ITAA 1936 because subparagraph 99B(2)(c)(i) of the ITAA 1936 reduces any amount included under subsection 99B(1) by any amount included in the beneficiary's assessable income under section 97 of the ITAA 1936.

The taxpayer is an Australian resident individual who has an interest in a non-resident trust estate.

The Foreign Investment Funds provisions in Part XI of the ITAA 1936 do not apply to the individual in relation to the trust.

Subsection 96B(2) of the ITAA 1936 deems the taxpayer to be a beneficiary of the non-resident trust estate who is presently entitled to a share of the income of the trust estate (equal to the amount calculated under section 96C of the ITAA 1936) and to not be under a legal disability.

In each of the earlier income years in which the beneficiary held the interest in the non-resident trust estate, their share of the net income of the trust estate (calculated under section 96C of the ITAA 1936) was included in their assessable income under section 97 of the ITAA 1936.

However, the taxpayer did not include those amounts in their income tax returns for the relevant years of income.

The trustee of the non-resident trust estate distributed trust property constituting the accumulated net income of the trust estate to the resident beneficiary in the current year of income.

Subsection 99B(1) of the ITAA 1936 includes an amount of trust property paid to or applied for the benefit of a beneficiary in the beneficiary's assessable income.

Subparagraph 99B(2)(c)(i) of the ITAA 1936 reduces the amount included under subsection 99B(1) of the ITAA 1936 by any amounts included in the beneficiary's assessable income under section 97 of the ITAA 1936.

The amount paid to the beneficiary by the trustee of the non-resident trust estate is included in the beneficiary's assessable income under subsection 99B(1) of the ITAA 1936, unless subparagraph 99B(2)(c)(i) of the ITAA 1936 applies to reduce that amount.

Where a beneficiary of a non-resident trust estate is presently entitled to a share of the net income of the trust estate and is not under a legal disability, then pursuant to section 97 of the ITAA 1936, an amount is included in their assessable income for the purposes of subparagraph 99B(2)(c)(i) of the ITAA 1936 irrespective of whether or not that amount has been included in their relevant income tax return: refer to sections 6-10 and 6-15 of the Income Tax Assessment Act 1997 .

Accordingly, pursuant to subparagraph 99B(2)(c)(i) of the ITAA 1936, an amount that is included in the resident beneficiary's assessable income under subsection 99B(1) of the ITAA 1936 is reduced by the amount that is or has been included in their assessable income under section 97 of the ITAA 1936. Note This ATO Interpretative Decision does not consider whether the Commissioner may amend the taxpayer's assessments in the earlier years (under section 170 of the ITAA 1936) to include the section 97 of the ITAA 1936 assessable income.