Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Low-income tax offset
Outline of chapter
3.1 Schedule 3 to this Bill amends the Income Tax Assessment Act 1936 (ITAA 1936) to ensure that where a trustee is assessed on the income of a beneficiary who is a minor, the trustee will not have access to the low income tax offset in circumstances where the income is considered to be unearned income of the minor.
Context of amendments
3.2 In the 2011-12 Budget, the Government removed the ability of minors to access the low income tax offset to reduce tax payable in their unearned income. This measure was designed to discourage income splitting between adults and children, including through the use of trusts. The amendment contained in Schedule 3 ensures that this policy applies where a trustee is assessed for tax on trust income of a beneficiary that is a minor, which is considered unearned income of that minor.
Summary of new law
3.3 This Schedule amends the ITAA 1936 to ensure that where a trustee is assessed on the income of a minor, the trustee will not have access to the low income tax offset in circumstances where the income is considered to be unearned income of the minor.
Comparison of key features of new law and current law
| New law | Current law |
| A trustee who is assessed under section 98 of the ITAA 1936 on a share of the trust's net income in respect of a beneficiary is not entitled to the low income tax offset to the extent that share is subject to Division 6AA of Part III of the ITAA 1936. | The application of Division 6AA of Part III of the ITAA 1936 is not taken into account to determine whether the low income tax offset can apply to a trustee that is assessed on a share of the trust's net income in respect of a beneficiary's income |
Detailed explanation of new law
3.4 Schedule 3 ensures that a trustee who is assessed and liable to pay tax under section 98 of the ITAA 1936 on a share of trust net income in respect of a beneficiary will not be entitled to a low income rebate of tax to the extent that share is subject to Division 6AA of Part III of the ITAA 1936. These amendments ensure that the policy objective to restrict the availability of the low income tax offset for unearned income of minors, through the operation of Division 6AA of Part III of the ITAA 1936, is properly applied in respect of trustee tax assessments. [Schedule 3, item 1, section 159N]
Application and transitional provisions
3.5 The amendment commences on the day the Bill receives Royal Assent. [Schedule 3, item 2]
3.6 The amendment applies to income tax assessments for the 2011-12 and later income years.
3.7 The retrospective application date is appropriate because the Government's announcement of the measure in the 2011-12 Budget made it clear that the new arrangements would apply to all unearned income derived by minors, including through trusts.