Concessionary tax income of minors
Testamentary trusts enable trust income to be distributed to
minors ( under 18 years of age) who are within the exceptions of
Division 6AA ITAA 36 at ordinary adult tax rates (including the
tax-free threshold). This is in stark contrast to the penalty
rates of tax which apply in respect of distributions to minors from
the usual inter vivos family discretionary trusts.
Section 102AG of ITAA 36 creates a class of income derived by
minors, known as "excepted trust income", and allows such income
received by an infant beneficiary to be taxed at normal adult rates
with the benefit of the initial tax free threshold and thereafter
the enjoyment of the stepped tax rates applicable to adults for
each minor beneficiary.
Excepted assessable income, amongst other things, includes
income derived by a minor from property of a deceased estate or
which is transferred to a minor from a deceased estate and includes
income from a deceased estate.
A properly drafted testamentary trust Will allows for tax
effective estate income to be distributed over many years within a
family. Significant tax savings can result for a family unit
through utilising the initial tax-free threshold and the stepped
tax rates applicable to distributions in excess of the threshold
for the beneficiaries of a testamentary trust. Also the 50%
CGT discount is applicable to the assets held by a testamentary
trust along with income streaming via the flexible distribution
discretion vested in the trustee in respect of other classes of
income, such as capital gains etc.
The only requirement for children under 18 to be eligible for
concessionally taxed income under a testamentary trust and to
thereby be assessed in the same manner as adult beneficiaries is
that the income is "assessable income of a trust estate that
resulted from a Will".