Income Tax Act 2007 Schedule 2 paragraph 102

Trustees' expenses to be set against trustees' trust rate income

Schedule 2 paragraph 102 provides transitional rules for how trustees of a settlement deal with allowable expenses that were incurred before the 2007-08 tax year, ensuring these older expenses can still be set against trust rate income under the new legislation but only once they have actually been paid.

• Allowable expenses incurred before 2007-08 can only be set against trust rate income once they have actually been paid by the trustees — unpaid expenses cannot be used as an offset
• Where such an expense is paid in 2007-08 or later, it is treated as if it were incurred in the tax year in which it was actually paid, allowing it to be set against trust rate income under the normal rules
• Where the expense was paid before 2007-08, modified carry-forward rules apply — the expense can only be carried forward if it could not reduce the trustees' tax liability in the year of payment solely because their section 686 income was too low or nil
• A carried-forward expense from before 2007-08 is only available if it has never been used to reduce the trustees' tax liability in any earlier year and has not already been set against trust rate income under the carry-forward provisions