Topics on testamentary trust (4)

A new integrity measure for testamentary trusts has been introduced, aiming to limit tax concessions for minors. Income from a testamentary trust will only enjoy tax benefits if it's derived from assets transferred from the deceased estate or subsequently accumulated. The amendments impose conditions ensuring a connection between the asset and the deceased estate for trust income to be excepted.

To qualify as 'excepted trust income', income from a testamentary trust must meet specific criteria:

• The income must come from property.
• The property must meet one of the following:
  • Transferred from the deceased's estate to benefit the beneficiary via the Will, codicil, intestacy, or court order.
  • Represent accumulations from property meeting the first requirement.
  • Represent accumulations from property meeting the second requirement or from property that previously satisfied this condition.

Tax Tip: Avoid injecting assets into testamentary trusts to simplify administration. If no assets are injected, all assessable income is considered excepted trust income, barring anti-avoidance provisions.

The proposed changes incentivize testamentary trusts to refrain from injecting assets, as it could lead to complex accounting and administrative challenges.

Income must be derived from property, which includes both real and personal property, as well as money. The Commissioner can deem income derived from property to maintain its status as 'excepted trust income', even if the asset type changes.

For any questions or assistance, reach out to Tax Ideas Accountants & Advisers at   

+61 2 83181545 or book an appointment through our live calendar.

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