Private ruling: Rental income
Date of advice: 22 June 2015
Published: June 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Does the rental income form part of your assessable income? | A1: No.


Relevant legislative provisions: Income Tax Assessment Act 1936 Division 6 of Part III.

Reasons for decision: Summary: Deceased estate Taxation Ruling IT 2622 Income tax: present entitlement during the stages of administration of deceased estates discusses tax issues in relation to a deceased estate and deals with the issue of who is presently entitled to the income of the deceased estate during the stages of administration. Paragraph 7 of IT 2622 states that in a deceased estate, whether a beneficiary is presently entitled to a share of the income of a trust estate for the purposes of Division 6 of Part III of the Income Tax Assessment Act 1936 (ITAA 1936) depends on: - The stage reached in the administration of the deceased estate. - The terms of the deceased's will or codicil, trust law and principles enunciated and orders made by the Courts. - Whether any discretionary payments have been made to the beneficiary by the executor or trustee. Paragraph 9 of IT 2622 states: Beneficiaries cannot enjoy present entitlement to income derived by a deceased estate during the administration of the estate. Income of a deceased estate in income years before the administration of the estate is complete, is the income of the executors or administrators and is not income of the beneficiaries. For income tax purposes, whether any beneficiary is presently entitled to a share of the income of the trust estate is determined on the last day of the financial year (paragraph 19 of IT 2622). In your case, the terms of your relative's will are relevant. Under the terms of the will you were not presently entitled to the house or proceeds from the sale of the house until entity A no longer resided there and the executor had sold the residence. After entity A moved out, the house remained an asset of the deceased estate until the executor had sold the house. Therefore as the house was not sold or transferred to you before 30 June 2014, you were not presently entitled to the house or the associated rental income derived from the house. It follows that the rental income does not form part of your assessable income. Other information As the house was an asset of the deceased estate at the time of rental, any rental income derived is assessable to the deceased estate. Any associated allowable expenses incurred in relation to the receipt of the rental income are also deductible to the deceased estate. The trustee of a deceased estate is generally required to file a tax return for the income derived after death by the deceased estate.

Relevant facts: As per your relation's will, entity A had the use, occupation and enjoyment of a property for as long as they continued to personally occupy the residence. When they ceased to occupy the residence, the property was to be sold with the net proceeds of sale to go to you and your sibling in equal shares. | Entity A moved from this property. | Entity B asked if they could rent the property for a short period. This was agreed to. | The rental money was placed in a separate joint account. | All the rent was received in the 2013-14 financial year. | The property was transferred to you and your relative in the 2014-15 financial year. The property was subsequently sold. | The deceased estate has been finalised.