Private ruling: Deceased estate
Date of advice: 22 December 2015
Published: March 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Will the Commissioner allow a later day under subsection 115-230(5) of the Income Tax Assessment Act 1997 (ITAA 1997) for making a choice to be specifically entitled to a capital gain? | A1: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 115-230(5).

Reasons for decision: Summary: Under the Income Tax Assessment Act 1936 , an income beneficiary who is entitled to a share of a trust's income is generally assessed on a similar share of the trust's net (or taxable) income. If the net income includes capital gains, the income beneficiary may be assessed on those capital gains even if, under the terms of the trust, they are not entitled to benefit from the capital gains. Under section 115-230 of the ITAA 1997 the trustee of a resident trust can make a choice in respect of the capital gains that are included in the trust's net income so that the trustee, rather than an income beneficiary, will be assessed on capital gains of the trust. The trustee who chooses to be assessed on the capital gains which would otherwise be assessed to an income beneficiary can make the choice if, under the terms of the trust, the income beneficiary cannot benefit from the capital gains. This means that the tax on the capital gains is in effect borne by the capital beneficiaries of the trust who will ultimately benefit from the capital gains. Under subsection 115-230(5) of the ITAA 1997, the trustee is required to make the choice within two months from the end of the income year to which the choice relates or a later day allowed by the Commissioner. That is, the Commissioner may allow further time for the trustee to make a choice in special circumstances. In this case, due to the complexities of the deceased estate, the specific advice in relation to the taxation matters was not received until after dd/mm/yyyy. The trustees comply with all of the other conditions attached to the choice provisions of section 115-230 of the ITAA 1997. In the specific circumstances of this case, the Commissioner will allow a later day to make the choice and will therefore accept the trustees' choice to be assessed on the capital gain.

The trustees of the estate have made a discount taxable capital gain during the relevant financial year. | Under the terms of the will, specified income must be distributed to specific beneficiaries. | The residual assets have been left to separate residual beneficiaries. The separate residual beneficiaries are entitled to the capital. | The capital gain was made on an asset to which the residual beneficiaries will be entitled but will not be distributed until the administration of the estate is complete. | The trustees have now received professional advice regarding the taxation of the income and wish to make a choice under section 115-230 of the ITAA 1997 so that the trustees are specifically entitled to all the capital gain. | The deadline for making the choice was dd/mm/yyyy or a later day allowed by the Commissioner. However due to the complex nature of the issues faced by the trustees, the professional advice was not received until recently and after dd/mm/yyyy. | The trust estate is a resident trust estate.