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Module 8 (Part B: Provisions governing the taxation of trust income from …

- - - - Calculation of capital gain
      - some or all of the payment comprises certain non-assessable amounts
      - a payment is made to a beneficiary in respect of their interest in the trust
  - - - income to date of death and amounts received thereafter
        
        Trustee lodges tax return on behalf of the deceased for income derived by the deceased until date of death
        
        Trustee lodges trust return for all amounts received by the trustee which would have been assessable income of the deceased had they been received when the deceased was alive
        
        excludes from the operation of s. 101A any lump-sum payments in respect of annual leave or long service leave received by the trustee of the estate of a deceased person, whereas employment termination payments received by the trustee are treated as income to which no beneficiary is presently entitled and are assessable in the hands of the trustee
      - after administration is complete.
        
        The trustee can now pass title to the assets to the will's beneficiaries and all taxation liability transfers to them
      - income from date of death to completion of administration of the estate
        
        Estate is taxed under s. 99 for up to three years on any trust income derived until administration is complete
    - - Figure 8.1 - p.560
    - - S.99 applies only when the Commissioner of Taxation (the Commissioner) considers it unreasonable to apply s. 99A. (p.559)
      - When there is net income of a trust to which no beneficiary is presently entitled, the trustee will be assessed and liable to pay tax on that share of net income under either s. 99 or
        s. 99A.
        
        Under s. 99, the trustee is assessed and liable to pay tax as if the income were that of an individual taxpayer and as if it were taxed at ordinary rates.
        
        Under s. 99A, all income is taxed at the top marginal rate of tax (presently 45% plus a 2% Medicare levy and a 2% Temporary Budget Repair Levy).
    - - In case of a beneficiary who is ‘presently entitled’ to any of the income of a trust estate but who is under a legal disability, the trustee will be liable to pay tax on it as if it were the income of an individual taxpayer and as if it were not subject to any deductions
    - - fixed trust
        
        trust deed may confer upon beneficiaries an automatic entitlement
        
        Alternatively, the trust deed may require some action by the trustee, such as a resolution to distribute trust income, in order to establish the present entitlement of a beneficiary
      - discretionary trust
        
        a beneficiary has no present entitlement to trust income until
        the trustee exercises a discretion. A final and irrevocable resolution of the trustee to pay or apply income for the benefit of a beneficiary before the end of the tax year in which the income is derived by the trust (typically 30 June) has the effect of vesting the income in the beneficiary.
        
        A beneficiary can have a present entitlement to trust income even though the precise amount has not been quantified at year end.
      - ‘entitlement’ refers to a beneficiary’s vested and indefeasible interest in trust income
- - - - discretionary trust - a beneficiary does not have a right to trust income or capital, only a right to be considered by the trustee as a potential recipient of trust income or capital.
        
        fixed trust, the beneficiary has a proprietary right to a fixed proportion of trust income or capital.
    - - A trust is not a separate legal entity and therefore the trustee is the person who operates the trust estate as legal owner of the trust property.
        
        Any person (including a company) who can hold property and sue and be sued can act as trustee.
    - - The trust property is the assets held by the trustee
    - - from whom consent must be gained before a change can be made to the trust deed
    - - the asset bestowed by the settlor to establish the trust,
    - - who has the power to appoint or remove the trustee
    - - who makes the original property settlement to establish the trust fund
  - - - The assets of the deceased are held by an executor appointed under the Will or by an administrator appointed by a court
        
        The deceased person is called the testator or testatrix
        
        The Will of a deceased person may direct that a separate trust be established for the benefit of particular beneficiaries. This is known as a testamentary trust and it is a separate trust to that created upon the death of the testator.
    - - Arises when it would be inequitable for the holder of property to be permitted to hold that property for their own benefit. Sometimes the trust is not really intended but arises due to an unforeseen event. Also known as a constructive trust.
    - - Fixed trusts
        
        Unit trusts
        
        the number of units beneficiaries held will determine the proportionate entitlement of a beneficiary to trust income or capital.
        
        Different classes of units may have different rights to income and/ or capital.
        
        Unit holders may be natural persons, companies or other trusts.
        
        Non-unit trusts
        
        A trust may be ‘fixed’ without units being issued
      - Discretionary trusts
        
        trust deed gives the trustee a discretion as to how the capital and income of the trust shall be dealt with
      - settlor (or donor) settling money or other property on a trustee appointed under a deed of trust
      - Hybrid trusts
        
        The interests of beneficiaries in part of the trust property will be ‘fixed’, most commonly by way of units,
        
        income and/or capital will be appointed to beneficiaries at the discretion of the trustee.