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23 Apr 08 Proportionate approach to s 97 applied - Bamford

The AAT has held that, in accordance with the decision in Zeta Force Pty Ltd v FCT (1998) 84 FCR 70, where there is an excess of tax net income over trust law income, s 97 ITAA 1936 requires that the excess be taxed to the beneficiaries to whom the trust law income was awarded in proportion to the amounts awarded to them. An argument by the taxpayers that, in this situation, the excess is taxed to the trustee under s 99A, in accordance with the view of Merkel J in Richardson v FCT (1997) 80 FCR 58, was rejected on the basis that Merkel J's view was expressed as obiter dicta.

Further, the AAT held that where there is no trust law income according to ordinary concepts, a clause in a trust deed empowering the trustee to treat a capital gain as income for the purposes of a distribution to beneficiaries did not have the result, under s 97, that the beneficiaries became liable to tax in respect of the tax net income of the trust. In this situation, the Commissioner was correct in assessing the trustee under s 99A ITAA 1936.

Bamford and P and D Bamford Enterprises Pty Ltd in its capacity as the Trustee of the Bamford Trust and FCT [2008] AATA 322 (AAT; Block DP and Professor Walker DP; 18 April 2008).

For a copy of the decision, go here

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