Private ruling: Commissioner's discretion under section 99A
Date of advice: 17 June 2016
Published: August 2016
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Will the Commissioner exercise discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to tax the income of the deceased estate under section 99 of the ITAA 1936? | A1: Yes.

Relevant facts and circumstances: In 20AA the deceased purchased a property. In 20BB the deceased passed away. In 20BB family members engaged lawyers to undertake searches and preliminary investigation in regards to the deceased's estate. In 20CC, as a result of legal correspondence, the family unsuccessfully applied for letters of administration. In 20CC additional lawyers were engaged and further affidavits were prepared for their case. In 20CC the family members lodged a probate claim and all other family members lodged family provisions with the court. In 20CC probate commenced. The defendants sought the appointment of an interim administrator. Claims and cross-claims were filed. In 20DD the case was referred to mediation. In 20DD mediation occurred and an agreement was reached. In 20DD probate was granted for letters of administration to the family members. In 20DD marketing for the sale of the property commenced. In 20EE the property was sold for $XXX. In 20EE the trust applied for Commissioner's discretion to extend the 2 year period for deceased estates under subsection 118-195(1) of the Income Assessment Act 1997 (ITAA 1997). The ruling was favourable. The assets of the trust are real estate, cash and shares in listed companies. There are no related trusts to the deceased estate. No loans have been made to or from the estate. The trust will continue to derive income for the 20FF-GG financial year in respect to the cash and the shares held in the trust pending the resolution of outstanding matters.

Relevant legislative provisions: Income Tax Assessment Act 1936 - Section 99 | Income Tax Rates Act 1986 - Section 12 | Income Tax Rates Act 1986 - Schedule 10 - Part 1

Reasons for decision: Summary: Section 99A of the ITAA 1936 will not apply to a trustee in an income year where the trust estate resulted from a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil if the Commissioner considers that it would be unreasonable to do so. Having regard to the factors in subsection 99A(3), the Commissioner considers that it would be unreasonable to apply section 99A in this case. The general practice is to assess the income of a deceased estate trust under section 99 of the ITAA 1936 unless there is tax avoidance involved. In your case, the trust is a deceased estate and there appears to be no tax avoidance involved. Therefore the deceased estate will be granted Commissioner's discretion under section 99A of the ITAA 1936 to be assessed under section 99 of the ITAA 1936. | Detailed Reasoning - Further issues for you to consider: The rates of tax for trustees assessed under section 99 of the ITAA 1936 are found in subsection 12(6) of the Income Tax Rates Act 1986 (ITRA 1986), which directs attention to Schedule 10 of the ITRA 1986. Part 1 of Schedule 10 of the ITRA 1986 identifies two classes of trustees for the purpose of determining the rates of tax that are to apply. In the first class are trustees who are liable to be assessed under section 99 of the ITAA 1936 in respect of resident trust estates of a deceased person where the income is derived in the year of death of the deceased or in any one of the following two years. These trustees are liable to pay tax at the rates applicable to resident individuals. The second class of trustees identified in Part 1 of Schedule 10 of the ITRA 1986 comprises trustees liable to be assessed under section 99 of the ITAA 1936 in respect of income of a resident trust estate, other than the estate of a person who died fewer than three years before the end of the income year. These trustees (including the trustees of testamentary trusts) are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold. There is no discretion available to the Commissioner to extend the three year period to apply the lower rates of tax or vary the rates of tax applicable under section 99 of the ITAA 1936.