On 14 December 2016 the ATO issued Taxation Determination TD 2016/19, which states that a trust beneficiary is not entitled to a deduction under s 25-35 of ITAA 1997 for an amount of unpaid present entitlement (UPE) that the beneficiary purports to write off as a bad debt. The Determination says this is because the amount of UPE is not included in the beneficiary's assessable income, but rather the entitlement is used to determine the amount of net income of the trust included in the beneficiary's assessable income under Div 6 of Pt III of ITAA 1936.

Consequently, according to the Determination, the requirement in s 25-35(1)(a) of ITAA 1997 that the relevant debt must be included in the taxpayer's income in that year or an earlier income year cannot be met. Two examples are given, outlining one situation where there is a simple unpaid entitlement and one where an entitlement is treated as a loan.

The Determination was previously released as Draft Tax Determination TD 2015/D5.

Date of effect

Taxation Determination TD 2016/19 applies to years of income commencing both before and after its date issue (14 December 2016).

Source: ATO, Taxation Determination TD 2016/9 Income tax: is a beneficiary of a trust entitled to a deduction under section 25-35 of the Income Tax Assessment Act 1997 for the amount of an unpaid present entitlement to trust income that the beneficiary has purported to write off as a bad debt? http://law.ato.gov.au/atolaw/view.htm?docid=%22TXD%2FTD201619%2FNAT%2FATO%2F00001%22