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Assessable Income from Non-discretionary Trusts pre 01/01/2002

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Assessment of income

Beneficiaries of non-discretionary trusts may have an interest in the trust's income depending on the nature and terms of the trust deed. The share of the trust's income that is allocated or distributed by the trustee(s) to a beneficiary is assessable income. Allocations and distributions are assessed as income for 12 months.    

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Overview of Ordinary Income

Section 10.1.1

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Assessment of franking credits

The following table describes the assessment of trust income that includes franking credits (known as imputation credits).

If a person is...

Then the...

a pensioner

  • cash dividends paid to them are held as income for 12 months from the date distributed, and
  • franking credits paid with the dividend are income for the purposes of the pension income test.
Description of income assessment for different roles within trusts

The following table describes the roles of individuals within the trust and the treatment of their trust related income. A person may have more than one role and each needs to be considered separately.

Role

Description

Settlor

Does not usually receive income from the trust, but the deprivation of income provisions may apply to loans or gifts.

Contributor

May receive income from interest on loans.

Deeming applies to the:

  • balance of any loan, or

Beneficiary

Is entitled to a fixed proportion of the distribution of income from the trust. This is held as income for 12 months from the date of distribution.

Trustee

May receive wages, fees, or salary. The current rate payable is held as on-going income. 'Out of pocket' annual basis expenses are not income.


A non-discretionary trust is a trust for which the terms of the trust deed do not give the trustee discretion about whether to:

  • pay or apply income, or
  • choose to whom the trust is distributed.

Trustee has two meanings depending on the context, (i) and (ii).

(i) a person who looks after someone else's affairs

According to section 202 of the VEA, a trustee is a person appointed by the Commission to administer the financial affairs of a pensioner who may be incapable of managing their own affairs for reasons such as:

  • age,
  • infirmity,
  • ill health, or
  • improvidence.

These criteria include circumstances where a pensioner has a psychiatric disorder or a mental illness as a result of alcohol or drug addiction.

A trustee can be appointed, with or without the consent of the pensioner and once appointed, a trustee has full control of the pension payment.

(ii) a person responsible for administration of a trust

According to section 52ZO of the VEA, trustee has the same meaning as in the Income Tax Assessment Act 1997.

 

 

A deprived asset is an asset:

  • that has been disposed of for less than its value (that is, adequate financial consideration has not been received), and
  • the value of which is included in the value of the person's assets for the purpose of determining that person's rate of pension.