Income Tax Act 2007 section 500

Restrictions on use of trustees' expenses to reduce the beneficiary's income

Section 500 sets out the conditions under which trustees' expenses may be used to reduce a beneficiary's income for income tax purposes, and the circumstances in which such a reduction is not permitted.

• Trustees' expenses may only reduce a beneficiary's income if they were incurred in the current or an earlier tax year and actually reduce the beneficiary's entitlement to income because they are properly chargeable to income.
• Expenses are chargeable to income if the settlement terms allow the trustees to charge them to income, unless an overriding legal rule prevents this.
• Where the settlement terms do not address the matter, expenses are chargeable to income if general trust law allows the trustees to charge them to income, unless an overriding term of the settlement prevents this.
• Expenses that have been, or may be, taken into account in calculating the trustees' own income tax liability for any tax year cannot also be used to reduce the beneficiary's income.

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