Tuesday, March 27, 2018

Just Can't Get Enough tax wins **

Matthew Burgess Just Can't Get Enough tax wins

Last week's post explored the more concessional than previously expected approach to superannuation proceeds trusts (SPT) by the Tax Office (see - Don't Stop Believin' - Tax Office & superannuation proceeds trusts **).

In another, possibly related, Private Binding Ruling (see Authorisation Number 1051187537572) the Tax Office provides further clarity about how an SPT can ensure infant beneficiaries access excepted trust income. As usual if you would like a copy of the Private Ruling please contact me.

As mentioned last week, the Tax Office accepts that an SPT can still access excepted trust income where the relevant superannuation death benefit is not paid directly to the deceased member's estate, but instead to their surviving spouse.

Importantly however, as is the case with estate proceeds trusts (to learn more about this structure see our previous post here - Testamentary trusts - is it ever too late?), the amount of income that is excepted trust income is limited to the amount of income that would have flowed to the child from property that would have devolved on the child from the estate of the deceased person under the laws of intestacy (see section 102AG(7) of the Tax Act).

In other words, the Tax Office essentially treats the superannuation death benefit as if it formed part of the estate of the deceased person. This means that in states such as NSW and Victoria the strategy is likely to be unavailable for tax planning purposes given that in those states infant children are not entitled to anything on intestacy if there is a surviving spouse.  

In the Private Ruling the Tax Office also confirms that -
  1. in order to access the excepted trust income regime, the infant beneficiary of the SPT must (pursuant to the terms of the trust deed) acquire the trust property (other than as a trustee) when the trust ends (as mandated by section 102AG(2A) of the Tax Act). 
  2. excepted trust income is only available for the SPT to the level that would have been derived had the parties been dealing on an arm's length basis (see section 102AG(3) of the Tax Act). Importantly, this requirement is not that the parties themselves have to be arm's length; rather they must act on an arm's length basis. 
  3. the income of an SPT will not be excepted income if it is derived, directly or indirectly, under or as a result of an agreement that was entered into or carried out for the purpose, or for purposes that included the purpose, of securing that the assessable income would be excepted trust income. However, if the purpose of deriving excepted trust income is no more than merely incidental, then the purpose is disregarded and the income may still be excepted (see sections 102AG(4) and (5) of the Tax Act). 
** For trainspotters, in 1981, when much of the original thinking around these rules was developed, the Depeche Mode song 'Just Can't Get Enough' was one of the hits of the year. Given the likelihood many readers of today's post were not born in 1981, further learning is available here - https://www.youtube.com/watch?v=_6FBfAQ-NDE

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