should the definition of trust income be s95 or s95 minus notional amounts? Australia

Sonar Pro

Vote: No

**No, the definition of trust income (trust law income) should not be s95.** **Distinction between concepts:** Trust law income is a common law/equitable concept determined by the trust deed or trustee discretion, while s95 defines 'net income' purely for tax purposes as total assessable income.[3][9] A trust can only distribute trust law income, not the tax law 'net income'.[3] **Deeds may equalize, but not redefine:** Some deeds allow trustees to set trust law income equal to s95 net income as a shortcut, but this uses deed powers to match it, not redefine trust income as s95 itself. Absent such powers, trust law income follows common law (excluding many notional items).[1][2][3] **Notional amounts issue:** S95 net income includes notional tax-only amounts (e.g., deemed capital gains, franking credits) not constituting real trust income. Defining trust income as s95 would allow invalid distributions beyond actual income, risking s99A taxation.[1][4][5] **ATO and practice confirm:** Distributions create present entitlement to trust income, with beneficiaries taxed on a share of s95 net income proportionally. Equating upfront avoids mismatch but doesn't make trust income 's95 minus notionals'.[7][8]

GPT-5.4

Vote: No

No. In Australian trust taxation, s95 defines the trust estate’s net income for tax purposes, but that is not automatically the same thing as the relevant concept of "income" for trust distribution purposes. The issue in your question is whether trust income should be taken as s95 reduced by notional amounts; generally, the better view is no. Notional amounts are tax constructs included in net income under s95 even where they are not actual receipts or gains available for distribution under trust law or the deed. Subtracting them may be useful in some allocation or streaming analyses, but it does not redefine the statutory meaning of s95 itself. Australian case law and practice distinguish between trust law income and taxable net income. Section 95 remains the statutory tax definition. Whether notional amounts should be excluded depends on the deed, present entitlement analysis, and specific provisions, not on rewriting the definition of s95. So if the question is whether the definition should be s95 minus notional amounts, the answer is no: s95 is the tax definition, and notional amounts are dealt with separately where relevant.

Grok 4.20

Vote: No

Section 95 of the ITAA 1936 calculates a trust's net income, but this figure includes notional amounts such as franking credits and certain deemed gains that do not represent cash or property actually held by the trustee. Trust law income, which governs what can be validly distributed to beneficiaries, should therefore exclude these notional items to prevent mismatches between accounting reality and tax calculations. Defining trust income as s95 minus notional amounts aligns distributions with available economic benefits, reduces streaming disputes, and is a common prudent approach in modern Australian trust deeds post-Bamford.

Claude Opus 4

Vote: Yes

In Australian tax law, the definition of 'trust income' under section 95 of the Income Tax Assessment Act 1936 (ITAA 1936) has been a subject of significant debate, particularly regarding whether notional amounts (such as franking credits and capital gains discount amounts) should be included. The question asks whether the definition should be s95 as it stands (which historically has been interpreted to mean income determined in accordance with the trust deed and ordinary trust law concepts) rather than s95 minus notional amounts. Voting 'Yes' supports the position that trust income should align with the s95 definition, which is the broader, more established approach. The High Court in *Commissioner of Taxation v Bamford* (2010) confirmed that 'income of the trust estate' under s95 refers to income as determined by the trust deed and general trust law, not a purely tax-law concept. This means that notional amounts (like franking credits under Division 207, or the CGT discount) are generally tax concepts that sit outside the ordinary meaning of trust income. The s95 definition, properly applied, already excludes many notional amounts because they are not 'income' in the trust law sense. Therefore, the correct approach is that trust income should be defined by reference to s95 as it operates — which inherently means it is the trust law/deed concept of income, and notional tax amounts that have no economic substance as trust receipts should not form part of it. This is the 'Yes' position: s95 as properly construed already handles the distinction appropriately.

Gemini 3.1 Pro

Vote: Yes

The disconnect between 'trust law income' and 'section 95 net income' under Division 6 of the ITAA 1936 creates significant compliance burdens and tax mismatches, famously highlighted by the Bamford case. Currently, proportionate taxation relies on trust law income, which can arbitrarily differ from statutory taxable income. Answering 'Yes' supports the much-needed legislative reform to base distributable trust income on a statutory s95 model. Specifically, defining it as 's95 minus notional amounts' (such as franking credits and CGT step-ups) is the most equitable and practical approach. Notional amounts are purely tax constructs, not actual cash available for physical distribution. By strictly defining trust income as s95 net income minus these notional amounts, the tax system would ensure beneficiaries are taxed proportionately on the real economic benefits they receive, eliminating phantom income issues and providing absolute certainty to Australian trustees.

Kimi K2.5

Vote: Yes

The definition of trust income (distributable income) should be s95 minus notional amounts. Section 95 of the ITAA 1936 defines 'net income of the trust estate' for tax purposes, but this statutory concept includes notional amounts—such as franking credits, foreign income tax offsets, and capital gains excluded by the trust deed—that do not represent actual trust property available for distribution under general trust law. The High Court confirmed in Thomas v FCT [2021] HCA 31 that 'income of the trust estate' is a distinct trust law concept, not synonymous with s95 net income. Defining trust income as raw s95 would create a mismatch where beneficiaries might be assessed on tax attributes they never received as distributions, violating the fundamental principle that tax liability should follow economic benefit. Therefore, the correct definition subtracts these notional statutory inclusions to arrive at the actual distributable income, ensuring alignment between who receives the trust cash flows and who bears the taxable liabilities.

Final Summary

The AI Roundtable ended in a 3-3 stalemate, split over whether to merge statutory tax definitions with common law trust concepts. Gemini 3.1 Pro and Kimi K2.5 pushed for a 'Yes' vote to align trust income with a modified s95 definition to eliminate 'phantom income,' while Sonar Pro and GPT-5.4 led the 'No' camp, arguing that tax statutes and trust deeds are distinct legal animals that should not be conflated.

No agreement after 1 rounds of discussion. Final vote: No: 3, Yes: 3

Strongest Arguments

• Yes: Defining trust income as s95 minus notional amounts ensures that tax liability follows the actual economic benefit received, preventing beneficiaries from being assessed on 'phantom' tax constructs like franking credits that have no cash value for distribution.
• No: Section 95 is a specific statutory definition of 'net income' for tax purposes; attempting to redefine it to match trust law 'income' ignores the fundamental legal distinction between the trust deed's powers and the Internal Revenue framework.