Private ruling: Assessable income
Date of advice: 27 July 2018
Published: September 2018
Ruling period: Financial year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the estate assessable for the 2017 financial year for interest on a loan to the family trust? | A1: No.

Relevant facts and circumstances: You are the executor of a deceased estate. Probate for the estate was granted in 2016 and you distributed all assets of the estate to the beneficiaries in 2016. A loan from the deceased to the family trust was discovered as outstanding and an amended probate was granted on in 2017. There is no formal loan agreement and no history of interest being charged by the lender on the loan amount. A meeting was held by the directors of the corporate trustee of the family trust (including the deceased) more than 10 years ago which resolved that: all loan monies received by the family trust, specifically from the deceased, is at call, and subject to interest at a rate to be determined by the lender or their legal representative at the end of the financial year. You, as legal personal representative of the deceased made no determination regarding interest payable on any loan amounts and the estate did not receive any amounts from the family trust in the 2017 financial year. Also, you as legal personal representative of the deceased, have never made any demands or requests for interest to be paid on the loan.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 95 | Income Tax Assessment Act 1936 section 97

Reasons for decision: Summary: There is no formal loan agreement and no history of interest being charged by the lender on the loan to the family trust. The only stipulation in relation to interest is contained in a resolution from the meeting of the directors of the corporate trustee of the family trust (including the deceased). That resolution states that interest for a financial year is to be determined at the end of the financial year by the lender or their legal representative. You as the executor of the deceased lender’s estate are the deceased’s legal representative. You did not make any determination regarding interest payable on the loan at any time during the 2017 financial year. Also, the estate did not receive any amounts from the family trust in the 2017 financial year. Based on the facts provided, there was no interest payable on the loan for the 2017 financial year and therefore no interest to be received by the estate. Also, the facts provided are that the estate did not receive any interest on the loan during the 2017 financial year. Therefore, the estate is not assessable for any interest on the loan during the 2017 financial year.