Private ruling: Deceased Estate - Commissioner's discretion
Published: February 2015
Ruling period: Income year ended 30 June 2014 | Income year ended 30 June 2015 | Income year ended 30 June 2016
Date scheme commenced: 1 July 2013

Ruling: A1: Yes

Relevant facts and circumstances: A taxpayer passed during the 20XX income year. A trust estate was created from the execution of the will. The taxpayer was formerly a shareholder of a private company and had entered into an agreement (with the other shareholders) for the sale of shares in the company to third parties. The vendors were required to provide commercial indemnities in relation to the affairs of the company, the longest expiring some years from the date of completion of the agreement Due to this, the Estate has a contingent liability in respect of any potential future warranty or indemnity claim made by the purchaser, under the terms of the share sale agreement, until the final expiration date of the indemnities.

Relevant legislative provisions: Section 99 of the ITAA 1936 | Section 99A of the ITAA 1936

Reasons for decision: Summary: Section 99A of the Income Tax Assessment Act 1936 (ITAA 1936) applies to assess a trustee on income to which no beneficiary is presently entitled or income which is retained or accumulated by the trustee unless: • The trust resulted from a will; subparagraph 99A (2)(a)(i) of the ITAA 1936 • The trust is bankrupt estate; paragraphs 99A(2)(b) and (c) of the ITAA 1936 • The trust is a trust that consists of property referred to in paragraph 102AG(2)(c) of the ITAA 1936 and the Commissioner forms the opinion that it would be unreasonable to apply section 99A in the circumstances. In respect of the policy behind section 99A of the ITAA 1936 Windeyer J in Giris Pty Ltd v FC of T 69 ATC 4015; (1969) 119 CLR 365 stated, That purpose I take it is to enable the Commissioner to keep sec 99A as an instrument to prevent avoidance of taxation by the medium of trusts, but not to use it when to do so would seem to him not in accordance with that purpose. Taxation Ruling IT 2622 explains that beneficiaries cannot be presently entitled to income derived by a deceased estate until the estate has been fully administered. The exception to this is of course if an executor does in fact pay part of the income of the estate to a beneficiary - at which point that beneficiary will be assessed on the basis that s/he was presently entitled to that income. The Commissioner will generally exercise the discretion to assess under section 99 of the ITAA 1936 unless tax avoidance is involved. Estates of the "ordinary and traditional" kind will be assessed under that section. As the estate is of the ordinary and traditional kind whose assets come directly from the assets of the deceased person, the Commissioner will exercise the discretion under subsection 99A(2) of the ITAA 1936 to assess the income of the trust in accordance with section 99 of the ITAA 1936 for the relevant income years.

Subject: Deceased Estate - Commissioner's discretion: Will the Commissioner form the opinion that it would be unreasonable that section 99A of the Income Tax Assessment Act 1936 apply to The Trustee of an Estate for the relevant income years?