Income Tax Act 2007 section 496

Income tax charged on trustees

Section 496 sets out when and how income tax is charged on trustees who make discretionary payments from a settlement, and determines the amount of that charge by comparing the tax deemed paid against the trustees' available tax pool.

• When trustees make discretionary payments that are grossed up under section 494, the associated income tax is treated as having been paid — this total is called "Amount A".
• The trustees' tax pool (calculated under section 497) represents the tax already borne on trust income and is referred to as "Amount B".
• An income tax charge arises only if Amount A exceeds Amount B — that is, if the deemed tax on discretionary payments is greater than the tax pool available for the year.
• The trustees are personally liable for the tax charge, which equals the difference between Amount A and Amount B.