Tax law review of whether deemed income is beneficiary income

When a trustee derives income for tax law purposes due to the application of deeming provisions it is not always clear whether that deemed income can be distributed as beneficiary income. 

An interpretation statement released today for discussion purposes considers the tax treatment where income is derived for income tax purposes but not trust law purposes.

The Interpretation Statement, which runs to some 27 pages can be summarised as determining that deemed income cannot be vested in or paid to a beneficiary.  Accordingly, to pay or otherwise vest deemed income, the trustee must be able to revert to capital to actually make the payment.  The Interpretation Statement essentially reaches the same conclusion as that expressed by me in Taxation of Trusts, 2011, ed 2 at para 3.050.