A senior industry stakeholder has highlighted a recent ATO private binding ruling as having particular significance for the tax treatment of a minor’s trust earnings relating to an investment from a superannuation death benefit.
“In this private binding ruling, the ATO confirmed that income earned in a trust for a minor beneficiary from investing a super death benefit is ‘excepted trust income’ under section 102AG of the [Income Tax Assessment Act (ITAA) 1936],” Institute of Financial Professionals Australia head of technical services Natasha Panagis told practitioners during a webinar providing a superannuation update.
“This allows the minor to be taxed at standard adult tax rates rather than the punitive minor tax rates under Division 6AA [of the ITAA 1936].
“The ATO [also] confirmed that the capital gains from reinvesting those unpaid present entitlements [from the trust] remain excepted trust income.”
Further, Panagis pointed out ITAA section 102AG(2)(c)(v) makes particular reference to property investments.
“This section specifically treats income derived from property transferred to a trust as a direct result of a person’s death, and sourced from a super death benefit, as excepted trust income,” she explained.
According to Panagis, this private binding ruling has provided some key takeaway messages for superannuation fund members.
“You’ve got to be able to trace all of this, maintain records showing the super death benefit source and the link between that corpus and the subsequent earnings to preserve that excepted [income] status,” she said.
“And as we saw reinvested UPEs (unpaid present entitlements) don’t taint the character [of the death benefit] based on these facts.
“So where those UPEs that relate to trust income are reinvested, the ATO accepts that the earnings on those reinvestments can be excepted, which can provide some really long-term trust strategies for minors.”
She acknowledge though this type of tax treatment would have to be assessed on a case-by-case basis.
