Understanding Eligibility for Concessional Tax Treatment in Testamentary Trusts
To qualify for concessional tax treatment under Section 102AG(2)(a), a testamentary trust must ensure that the property generating income meets one of three criteria. These criteria are designed to prevent assets not related to the deceased's estate from being added to the trust for tax advantages.
First Requirement The property must have been directly transferred from the deceased’s estate into the testamentary trust according to the Will. This ensures a clear link between the trust's property and the deceased's estate, excluding any unrelated assets from receiving tax benefits. Only beneficiaries named in the Will are eligible for this income.
Second Requirement This covers property considered by the Commissioner to be accumulations of either income or capital from assets that meet the first requirement. It allows earnings from these initial assets to also qualify for concessional treatment.
Third Requirement This applies to properties that represent further accumulations of income or capital from assets meeting the second requirement, or those previously qualifying under this third criterion. It extends benefits to ongoing earnings generated within the trust.
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