5Primary taxable amounts

5 Primary taxable amounts

(1) Subject to subsections (2) and (3), where: (a) at any time, whether before or after the commencement of this Act, a beneficiary of a trust estate had a vested and indefeasible interest in any of the income of the trust estate of a year of income (in this subsection referred to as the relevant year of income); (b) the beneficiary was not presently entitled to that income but would, apart from this section and subsection 100A(1) of the Assessment Act, have been deemed for the purposes of that Act to be presently entitled to that income; (c) the vested and indefeasible interest of the beneficiary in the whole or a part of that income (which whole or part is in this subsection referred to as the relevant trust income) arose out of a tax avoidance scheme, or by reason of any act, transaction or circumstance that occurred as part of, in connection with or as a result of a tax avoidance scheme, entered into on or after 12 May 1982; (d) by reason of, as a result of or as part of the tax avoidance scheme or by reason of any act, transaction or circumstance that has occurred, will occur, or may reasonably be expected to occur, being an act, transaction or circumstance occurring as part of, in connection with or as a result of the tax avoidance scheme, the present value of the benefit, or the sum of the present values of each of the benefits, that has or have been, will be, or may reasonably be expected to be, derived by the beneficiary as a consequence of the vested and indefeasible interest of the beneficiary in the relevant trust income is less than 50% of the amount of the relevant trust income; and (e) by reason that the beneficiary would, apart from this section and subsection 100A(1) of the Assessment Act, have been deemed for the purposes of that Act to be presently entitled to the relevant trust income, the trustee of the trust estate would not have been liable to be assessed and to pay tax under section 99 or 99A of that Act in respect of the net income or a part of the net income (which net income or part is in this subsection referred to as the relevant amount) of the trust estate of the relevant year of income; the following provisions have effect: (f) the beneficiary shall, for the purposes of the Assessment Act other than sections 99 and 99A, be deemed not to be, and never to have been, presently entitled to the relevant trust income; (g) a primary taxable amount equal to the relevant amount shall be taken to exist in relation to the trustee of the trust estate in relation to the relevant year of income. (2) Subject to subsection (3), where: (a) by reason of the application of subsection (1) or of this subsection, a primary taxable amount exists in relation to the trustee of a trust estate (in this subsection referred to as the sub‑trust) in relation to a year of income (in this subsection referred to as the relevant year of income) in relation to a tax avoidance scheme (in this subsection referred to as the relevant scheme); (b) apart from this section and section 100A of the Assessment Act, the trustee of the sub‑trust: (i) was presently entitled to a share of the income of another trust estate (in this subsection referred to as the head trust) of the relevant year of income; (ii) would, by reason that income of another trust estate (in this subsection also referred to as the head trust) of the relevant year of income was paid to, or applied for the benefit of, the trustee of the sub‑trust, have been deemed, for the purposes of the Assessment Act, to be presently entitled to income of the head trust; or (iii) would, by reason that the trustee of the sub‑trust had a vested and indefeasible interest in any of the income of another trust estate (in this subsection also referred to as the head trust) of the relevant year of income, have been deemed, for the purposes of the Assessment Act, to be presently entitled to that income of the head trust; (c) in a case to which subparagraph (b)(i) applies—the present entitlement of the trustee of the sub‑trust to the share or to a part of the share (which share or part is in this subsection referred to as the relevant head trust income) of the income of the head trust referred to in that subparagraph arose out of the relevant scheme or arose by reason of any act, transaction or circumstance that occurred as part of, in connection with or as a result of the relevant scheme; (d) in a case to which subparagraph (b)(ii) applies—the whole or a part (which whole or part is in this subsection also referred to as the relevant head trust income) of the income of the head trust referred to in that subparagraph was paid or applied as mentioned in that subparagraph as a result of the relevant scheme or as a result of any act, transaction or circumstance that occurred as part of, in connection with or as a result of the relevant scheme; and (e) in a case to which subparagraph (b)(iii) applies—the vested and indefeasible interest of the trustee of the sub‑trust in the whole or a part (which whole or part is in this subsection also referred to as the relevant head trust income) of the income of the head trust referred to in that subparagraph arose out of the relevant scheme or arose by reason of any act, transaction or circumstance that occurred as part of, in connection with or as a result of the relevant scheme; the following provisions have effect: (f) the primary taxable amount referred to in paragraph (a) shall be reduced by so much of that amount as is attributable to the relevant head trust income; (g) a primary taxable amount equal to the amount of the reduction referred to in paragraph (f) shall be taken to exist in relation to the trustee of the head trust in relation to the relevant year of income. (3) Where, but for this subsection, 2 or more primary taxable amounts (in this subsection referred to as the original taxable amounts) would be taken to exist in relation to the trustee of a trust estate in relation to a year of income in relation to a tax avoidance scheme by reason of the application of subsection (1) or (2): (a) the original taxable amounts shall not be taken to exist; and (b) a primary taxable amount equal to the aggregate of the original taxable amounts shall be taken to exist in relation to the trustee of the trust estate in relation to the year of income. (4) For the purposes of paragraphs (1)(c) and (2)(e), but without limiting the generality of those paragraphs, where: (a) a tax avoidance scheme was entered into at or after the time when a person became a beneficiary of a trust estate; and (b) the amount (in this subsection referred to as the increased amount) of the income of the trust estate in which the beneficiary had a vested and indefeasible interest exceeds the amount (in this subsection referred to as the original amount) of the income of the trust estate in which the beneficiary would have had, or could reasonably be expected to have had, a vested and indefeasible interest if the tax avoidance scheme had not been entered into or if an act, transaction or circumstance that occurred as part of, in connection with or as a result of the tax avoidance scheme had not occurred; the vested and indefeasible interest of the beneficiary in so much of the increased amount as exceeds the original amount shall be taken to have arisen out of the tax avoidance scheme. (5) In paragraph (1)(d) a reference to the present value of a benefit that has been, will be, or may reasonably be expected to be, derived by a beneficiary of a trust estate as a consequence of a vested and indefeasible interest of the beneficiary in the relevant trust income referred to in that paragraph is a reference to: (a) where the benefit was derived before the end of the year of income in which the relevant trust income was derived—the amount or value of the benefit at the time at which it was derived; or (b) in any other case—an amount ascertained in accordance with the formula where: A is the amount or value of the benefit at the time at which it was, will be, or may reasonably be expected to be, derived; and n is the number of years between the end of the year of income in which the relevant trust income was derived and the time referred to in component A. (6) For the purposes of paragraph (2)(c), but without limiting the generality of that paragraph, where: (a) a tax avoidance scheme was entered into at or after the time when a person became a beneficiary of a trust estate; and (b) the amount (in this subsection referred to as the increased amount) of the share of the income of the trust estate to which the beneficiary was presently entitled exceeds the amount (in this subsection referred to as the original amount) of the income of the trust estate to which the beneficiary would have been, or could reasonably be expected to have been, presently entitled if the tax avoidance scheme had not been entered into or if an act, transaction or circumstance that occurred as part of, in connection with or as a result of the tax avoidance scheme had not occurred; the present entitlement of the beneficiary to so much of the increased amount as exceeds the original amount shall be taken to have arisen out of the tax avoidance scheme. (7) For the purposes of paragraph (2)(d), but without limiting the generality of that paragraph, where: (a) a tax avoidance scheme was entered into at or after the time when a person became a beneficiary of a trust estate; and (b) income of the trust estate was paid to, or applied for the benefit of, the beneficiary and the amount (in this subsection referred to as the increased amount) of that income exceeds the amount (in this subsection referred to as the original amount) that would have been, or could reasonably be expected to have been, paid to, or applied for the benefit of, the beneficiary if the tax avoidance scheme had not been entered into or if an act, transaction or circumstance that occurred as part of, in connection with or as a result of the tax avoidance scheme had not occurred; so much of the increased amount as exceeds the original amount shall be taken to be income of the trust estate that was paid to, or applied for the benefit of, the beneficiary as a result of the tax avoidance scheme. (8) A primary taxable amount may be taken to exist in relation to the trustee of a trust estate notwithstanding that the trust estate has ceased to exist.