Tax Act amendment could affect super proceeds trusts

The recent “expected income” amendment to the Tax Act for testamentary trust distributions may affect superannuation proceeds trusts (SPT) if there are assets unrelated to the property of a deceased estate injected to a trust, according to Supercentral. 

An analysis by the compliance platform said the amendment was a to prevent assets unrelate to the estate being injected into the testamentary trust for the purpose of generating concessionally taxed excepted income. 

It noted SPTs could be structured as testamentary trusts to provide certainty of succession and proper documentation to ensure super death benefits would be paid to the deceased member’s estate, or could be formed after the death of the fund member which were subject to certain restrictions. 

“In both scenarios, the beneficiaries of the SPT will be Tax Act dependants of the deceased fund member. Super death benefits distributed to the estate with TA dependants as beneficiaries are tax free,” Supercentral said. 

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“This preserves the tax-free status of the distributions as if they were made directly to TA dependants. In addition, SPT income distribution to minors, subject to applicable rules, will qualify as excepted income taxable at the adult’s marginal tax rates and not the penalty rates of children.” 

With the excepted income amendment, to quality the assessable income of the testamentary trust has to be derived by the trustee for the benefit of the beneficiary out of “property transferred to the trust from the estate of the deceased person” as a result of the will, codicil, intestacy or a court order, it said. 

Accumulations of income or capital from property and conversion of property from one type to another would also meet this requirement. 

Supercentral said only assets unrelated to the property of the deceased estate injected to the trust would be caught by the new provision. 

It pointed to the Australian Taxation Office’s statement that said: “Your income from a testamentary trust is not excepted income if it is generated from assets: 

Acquired by or transferred to the trustee of the trust on or after 1 July, 2019; and 

That were unrelated to property of the deceased estate”. 

“Where a super fund pays death benefits to the deceased member’s LPR (the executor or administrator of the estate), the super death benefits will devolve in accordance with the will of the deceased member,” Supercentral said. 

“In the case of the SPT, the property (which includes money) transferred to the testamentary trust under the will will be made directly from the estate.  The transfer is not of unrelated estate property and the requirements of subsection 102AG(2AA) will be met.”