Tuesday, April 3, 2018

Accessing excepted trust income - just like working 9 to 5 **

Matthew Burgess Accessing excepted trust income - just like working 9 to 5, post death testamentary trusts, superannuation, estate planning

The last two posts have explored the more concessional than previously expected approach to superannuation proceeds trusts (SPT) by the Tax Office (see - Just Can't Get Enough tax wins ** and Don't Stop Believin' - Tax Office & superannuation proceeds trusts **).

In Private Binding Ruling (see Authorisation Number 1051187537572) the Tax Office provides further clarity about how an SPT needs to be structured in order to ensure infant beneficiaries can access the excepted trust income regime. As usual if you would like a copy of the Private Ruling please contact me.

In particular, the Tax Office states that in order for an SPT to satisfy the conditions to access excepted trust income and the provisions in sections 102AG(2)(d)(ii) and 102AG(2A) of the Tax Act, the following criteria must be met -
  1. the key beneficiaries must be infant children. 
  2. the purpose of the SPT must be to provide for the maintenance, education and benefit of the children. 
  3. the children must be the only capital beneficiaries of the SPT. 
  4. any power to appoint additional beneficiaries must be restricted to ensure any appointment will meet the requirements of sections 102AG(2)(d)(ii) and 102AG(2A) of the Tax Act. 
  5. the income of the SPT can only be accumulated for, or distributed to or for, the benefit of the children (although based on the Private Ruling mentioned in the post 2 weeks ago, it is likely that (for example) the surviving parent can also be an income beneficiary). 
  6. property transferred to the SPT for the benefit of each of the children will be held exclusively for each of the children and can be distributed to only that child during or at the end of the SPT. Again, based on the Private Ruling mentioned in the post 2 weeks ago, it is likely that on vesting of the SPT, if the relevant children die before the SPT vests, the trust fund can be held for the legal personal representatives of the children. 
** For trainspotters, in 1980/1981, when much of the original thinking around these rules was developed, the Dolly Parton movie and song 'Working 9 to 5' were big hits. 'Working 9 to 5' being used as a reference to having to follow the rules set by the 'machine' - hence the reference in the title to this post. Given the likelihood many readers of today's post were not born in 1981, further learning is available here -

Movie - https://en.wikipedia.org/wiki/9_to_5_(film)

Image courtesy of Shutterstock