Commentary on Sections Structure of Chapters Overview Section 631: Retained and accumulated income
2421.This section applies the rule in section 629 where payments are made to or for the benefit of a minor child of the settlor out of a settlement under which income is retained or accumulated. It is based on section 660B of ICTA.
2422.Subsection (1) provides the general rule. The payment must be made in connection with the settlement out of a trust under which income may be retained or accumulated. The distinction in trust law between “retained” and “accumulated” income (income the trustees have resolved to treat as capital) has been retained.
2423.Subsection (2) provides that such payments are treated as payments of income even though out of capital as long as there is sufficient accumulated or retained income available to make the payment in question.
2424.Subsection (4) sets out what is meant by available retained or accumulated income in subsection (2). Income that has arisen under the settlement must exceed the amounts set out in subsection (5). These are amounts that have been paid out in expenses or already treated as the income of the settlor or another person, including a minor child of the settlor.
2425.Subsections (6) and (7) provide the computation for income subject to income tax of a minor child of the settlor for the purposes of subsection (5)(d). One first computes a figure for the whole of the child’s income from all sources less allowances and deductions and then compares that with the sums treated as the child’s income under the settlement. If the income less allowances is sufficient to include the child’s income from the settlement then that income is deemed to have been subject to tax, ie the settlement income is treated as the top slice of the child’s income.