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01 Dec 14 Div 6AA tax rate of 45% applied - The Trustee for the Confidential Trust

The AAT has held that the Commissioner correctly applied tax at the rate of 45% on income distributed by a trust to two beneficiaries, both of whom were under the age of 18 years, pursuant to the provisions of Div 6AA ITAA 1936. Specifically, the beneficiaries were not excepted persons and the income was not excepted trust income.

The income arose from the investment by the trust of moneys paid in respect of a workers compensation claim, which was settled on the trust by a third party. It was not "property transferred to the minor...pursuant to any law relating to worker's compensation", as required by s 102AE(2)(b)(ii), and was not therefore "excepted assessable income". Nor was the income "derived by the trustee of the trust estate from the investment of any property transferred to the trustee for the benefit of the beneficiary...pursuant to any law relating to worker’s compensation", as required by s 102AG(2)(c), and was not therefore "excepted trust income".

The AAT said, at para 25, as follows:

"As a matter of statutory construction, taking into account the context in which the description of excepted assessable income and excepted trust income appear under Division 6AA of ITAA 1936, the intention manifested in ss. 102AE and 102AG is identical. That intention is where property is transferred to the minor pursuant to any law relating to worker’s compensation, income earned from that property, which includes money, is excepted income. Transfer to a trust is included provided that, when the trust ends, the relevant beneficiaries will acquire the trust property in accordance with the trust deed (s. 102AG (2A)). That proviso aligns a transfer to a trust on behalf of the minor with the transfer directly to a minor. Another way of stating it is the way which [counsel] who appeared on behalf of the Commissioner, put it. She referred to the minor beneficiaries being required to have an absolute vested interest in the property from the inception of the trust."

The Commissioner's objection decision was affirmed.

The Trustee for the Confidential Trust and FCT [2014] AATA 878 (AAT, Fice SM, 26 November 2014).

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