Tax Tip 191: Tax on Trust Income not Distributed

Tax Tip 191: Tax on Trust Income not Distributed/Retained

Where a trust has income and no one is presently entitled to it, the trustee of the trust will be taxed on this income at the top marginal tax rate because of s99A(4) ITAA36

INCOME TAX ASSESSMENT ACT 1936 - SECT 99A Certain trust income to be taxed at special rate


Note that the income doesn’t necessarily need to be distributed, it could be retained by the trust yet still be taxed in the hands of the beneficiary if they have been made presently entitled to it.

On present entitlements and trusts see this post I wrote a few years ago:

Legal Tip 87: Trusts and Unpaid Present
Entitlementshttps://propertychat.com.au/community/threads/legal-tip-87-trusts-and-unpaid-present-entitlements.4718/

Example
Simpson family trust has $10,000 in income in year 1. The trustee makes Bart presently entitled to the income so Bart is the one that is taxed on this income. The trustee may not physically transfer the money, but if the is the case Bart will still be taxed (and he will have an unpaid present entitlement with the trust, which is similar to a loan). Bart has no other income and pays no tax.


In year 2 the trust has $10,000 in income, but the trustee doesn’t make anyone presently entitled – perhaps they forgot, or perhaps their resolutions were defective.

The trustee will pay the tax at the top tax 47%

 

Since Bart is a minor under the age of 18 then isn't $416 the maximum a trust can distribute to him tax-free without him being taxed at 66% of the excess over $416?

 

Ha ha. This is a different Bart aged 34.

 

Bart has aged quite quickly since the last time I saw him