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Topics on testamentary trust (5)

In: Trust
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The property must satisfy any of three requirements

Once it has been established that the relevant assessable income is derived by the testamentary trust from property, it is proposed that the property must satisfy any one of three requirements in order to be eligible for concessional tax treatment under S.102AG(2)(a). All three requirements are designed to ensure that assets unrelated to the deceased estate cannot be injected into the testamentary trust to derive excepted trust income for the purposes of Division 6AA.

First requirement – proposed S.102AG(2AA)(b)(i)

Broadly, property will satisfy the first requirement where it was transferred to the testamentary trust from the deceased estate to benefit the beneficiary as a result of the Will.

This requirement ensures that there is a direct connection between the property from which the excepted trust income is derived and the deceased estate that gave rise to the testamentary trust. Essentially, this requirement has the effect of excluding property that is unrelated to the deceased estate, thereby denying these unrelated assets the benefit of concessional tax treatment.

Furthermore, this requirement also serves to ensure that only beneficiaries included in the class of beneficiaries by the deceased (rather than an entity which was later added) can be entitled to excepted trust income.

Second requirement – proposed S.102AG(2AA)(b)(ii)

The second requirement is designed to cover any property that, in the opinion of the Commissioner, represents accumulations of income or capital from property that satisfies the first requirement (i.e., assets that are directly transferred from the deceased estate for the benefit of the beneficiary as a result of the Will).

This effectively ensures that any further income from property that represents undistributed trust income or capital from such assets in a testamentary trust (i.e., any earnings on earnings from the transferred assets) can also be excepted trust income.

Third requirement – proposed S.102AG(2AA)(b)(iii)

The third requirement will be satisfied where any property that, in the opinion of the Commissioner, represents accumulations of income or capital from property that satisfied the second requirement or property that has already previously satisfied this third requirement.

This requirement is simply a further extension to take into account any earnings on the earnings covered by the second requirement and any such further accumulations (and so on) to ensure that they can be treated as excepted trust income in the testamentary trust.

 

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Tags: Trust

Written by Panbo Ye

I help people discover POWERFUL unknowns in Tax Ideas | Wealth Strategies | Retirement Planning | Finance Solutions!

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