Present Entitlement of a Beneficiary under a Disability
15.14. The interpretation of present entitlement as meaning a right to claim immediate payment from the trustee would appear to prevent a person under a disability (for example, a minor), who cannot enforce payment because he cannot give a valid receipt, from ever being presently entitled except when a deeming provision like section 101 operates. But this consequence would conflict with the evident intention of section 98 which contemplates that a person under a disability may be presently entitled. The interpretation of ‘presently entitled’ as including a situation where a person is prevented only by his disability from claiming immediate payment, which has been adopted in one judicial decision, should, in the view of the Committee, be confirmed.
15.15. Where a person under a disability is presently entitled to income of a trust, tax on his allocation of the net
income of the trust estate must be paid by the trustee as the agent of the beneficiary (section 98). The allocation
must nonetheless be included
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in a return by the beneficiary if he has income from any other source. The
tax paid by the trustee is a credit against tax assessed on the beneficiary's income from all sources (section 100).
However, the tax credit apparently cannot give rise to a refund. A beneficiary may have deductible outgoings exceeding
his income from sources other than the trust and may fairly claim to be over-taxed. In the Committee's view, the tax
credit in these circumstances should be available as a refund. Alternatively, section 98 should be repealed. Basically
it appears to be designed to ensure the collection to tax on income assessable to a minor and, to a limited extent, to
other persons under legal disability. There are undoubtedly many cases where minors derive income directly and in
their own right from dividends, interest and rent, and the Committee is not aware of any difficulties in collecting
tax in these cases. If section 98 is retained there will need to be further provisions to make the refund available
and to give effect to the proposal elsewhere in this report for assessing the unearned income of a minor at a rate of
tax based on the income of the parent. The need for these provisions would be avoided and the law simplified if
section 98, and consequently section 100, were repealed. In cases of difficulty the special garnishee provisions in
section 218 would be available to the Commissioner.