Income Tax Act 2007 section 873

Discretionary or accumulation settlements

Section 873 defines when a settlement qualifies as a discretionary or accumulation settlement for the purposes of the tax rules on settlors and beneficiaries.

• A settlement is a discretionary or accumulation settlement if any income arising to the trustees — unless treated as the settlor's own income — would to any extent be accumulated or discretionary income, or an amount taxable at the special trust rates, for the tax year in which it arises.
• Income qualifies if it falls within the definition of accumulated or discretionary income in section 480, but income from charitable trusts and certain unauthorised unit trusts covered by regulation 12 of the Unauthorised Unit Trusts (Tax) Regulations 2013 is excluded.
• Income also qualifies if it is an amount of a type listed in section 482, unless the trust is a unit trust scheme, the income arises under a charitable trust, or section 481(5) excludes it.
• These rules determine which settlements are subject to the higher trust tax rates, ensuring that trusts with discretionary or accumulation features are properly identified and taxed accordingly.