TR 98/4 Child Maintenance Trust Arrangements

Taxation Ruling 98/4 lists five situations where trust income does not qualify as excepted income. Patrick Ellwood of Clover Law in Brisbane will walk you through these five situations – the first three we cover in this episode and then the final two in the next episode.

Here is a short list of these three situations but please listen to the actual episode since we go into a lot more details in the episode and Patrick explains all this much better than we ever could.

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TR 98/4 Child Maintenance Trust Arrangements

In the last episode, we focused on s102 AG and 102 AE ITAA97. In this (and the next) episode, let’s examine TR 98/4, which is the tax ruling that deals with excepted income in child maintenance trusts.

Paragraph 10 of TR 98/4 highlights five scenarios where the ATO will not recognize the CMT income as excepted.

Situation # 1 – Property Not Transferred Beneficially to the Child

Quote “…it does not derive from the investment of property transferred beneficially to the child” End of Quote

Situation # 2 – Not from the Investment of Property

Quote “…it does not derive from the investment of property at all by the trustee” End of Quote

Situation # 3 – Not Transferred as the Result of a Family Breakdown

Quote “…the property has not been transferred beneficially to the child as the result of a family breakdown” End of Quote

Main Learnings

Here are the three main learnings we took away from this episode.

1 – No Discretionary Trust

Having discretionary trusts in close proximity to a Child Maintenance Trust can create significant issues. So to avoid issues, keep discretionary trusts away from a CMT.

2 – Property Transfer Must be at the Time of Breakdown

Additionally, the assets must be transferred to the Child Maintenance Trust during the period of family breakdown. You can’t come three years later and set up the CMT or move more assets into it.

So it all needs to happen between separation and the final property settlement.

3 – Related Parties are the Issue

The ATO won’t be worried about your CMT if you transfer listed shares or commercial property or similar into the CMT. The issues arise when you transfer the shares or units of a related entity or property that you use through a related entity into the trust.

Child Maintenance Trust Income

CMT Excepted Income

Child Maintenance Trust Questions

Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.

Last Updated on 17 May 2023

Tax Talks spoke to Patrick Ellwood - Director at Clover Law - for more details.