Private ruling: Trust - deceased estate
Date of advice: 22 July 2016
Published: August 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: October 20YY

Ruling: Q1: Were the beneficiaries of the estate presently entitled to the income of the deceased estate distributed to them in May 20XX? | A1: Yes | Q2: Were the beneficiaries taxable on their share of the net income of the deceased estate from the date of death until June 20XX? | A2: Yes

Relevant facts and circumstances: The deceased person passed away during the 20YY-XX financial year. The administration of the estate and the granting of probate of the will also occurred during this financial year. The trustee made an interim distribution to the beneficiaries prior to the end of the financial year. None of the beneficiaries were under a legal disability or a tax advantaged entity.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 97

Reasons for decision: Summary: Section 97 of the Income Tax Assessment Act 1936 (ITAA 1936) states that a beneficiary who is not under a legal disability and who is presently entitled to a share of the income of a trust must include in their assessable income their share of the net income of the trust estate. Taxation Ruling IT 2622 discusses present entitlement during the stages of administration of a deceased estate. IT 2622 illustrates the stages of administration of the estate of a deceased person as follows: | Detailed Reasoning - STAGES OF ADMINISTRATION: 1. Burial of deceased. 2. Executor appointed by will or administrator appointed by Court. 3. Probate applied for and granted by Court. 4. Assets vest in executor who pays debts and testamentary expenses: • Initial stage - net income of estate is applied to reduce debts, etc. • Intermediate stage - part of the net income of estate that is not required to pay debts, etc., may be paid to beneficiaries. • Final stage - debts, etc., are paid or provided for in full and net income of estate is available for distribution. | Detailed Reasoning - ADMINISTRATION OF ESTATE IS COMPLETE: Paragraphs 11 and 13 of IT 2622 state a deceased is fully administered when the net residue is ascertained, that is, when an estate has been fully administered by payment or provision for the payment of funeral and testamentary expenses, death duties, debts, annuities and legacies and the amount of the residue thereby ascertained. In your case, the estate was fully administered in the same financial year in which the deceased passed away. The beneficiaries are therefore presently entitled to the income of the deceased estate in the 20YY-XX financial year. The net income of the trust deceased estate (and whether any beneficiary is presently entitled) is determined on the last day of each income year (30 June). This means that, on the last day of the income year, a beneficiary who is presently entitled will be assessed on their share of the net income for the whole of the income year. Therefore, the beneficiaries of the estate were presently entitled to the estate income in the 20YY-XX financial year, and they were not under a legal disability nor tax advantaged entitles. The beneficiaries are therefore required to include their share of the estate income in their individual income tax returns for the year ended 30 June 20XX.