Private ruling: Deceased Estate – Trust Income – Taxed at Special Rates – Non-resident beneficiaries
Date of advice: 30 May 2018
Published: September 2018
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018
Date scheme commenced: 1 July 2016

Ruling: Q1: For the period from the deceased’s date of death until the administration of the Estate is complete are the Executors subject to tax on the income of the Estate under section 99 of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes 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. Subsection 99A(2) outlines the situations when the Commissioner may apply his discretion for section 99A not to apply, which includes trust estates resulting from a will, codicil, etcetera. In this case the Executors are subject to tax on the income of the Estate under section 99 of the ITAA 1936. | Q2: If the administration of the Estate is completed and the Executors distribute the proceeds of the Estate to the beneficiaries before 30 June 2018, will the income derived between 1 July 2017 and the date of the administration of the Estate be taxed to the Executors under section 99 of the ITAA 1936? | A2: Yes In accordance with paragraph 21 of Taxation ruling IT 2622 Income Tax: present entitlement during the stages of administration of deceased estates (IT 2622) where you are able to demonstrate through the striking of accounts at the completion of administration, the actual amounts of income derived in the periods before and after the day on which the Estate was fully administered you could apportion the income derived between those periods. The Estate will be taxed to the Executors under section 99 of the ITAA 1936. | Q3: If the administration of the Estate is completed and the Executors distribute the proceeds of the Estate to the beneficiaries before 30 June 2018, will the income derived between the date of the administration of the Estate and 30 June 2018 be taxed to the Executors under sections 98(2A) and 98(3) of the ITAA 1936? | A3: Yes In accordance with IT 2622 the income in your case will be assessed under subsections 98(2A) and (3) of the ITAA 1936 once the foreign resident beneficiaries become presently entitled, and the trustee will be assessed under those provisions.

Relevant facts and circumstances: The deceased passed away during XXXX Probate of the deceased’s last Will and Testament has been granted to the Executors You provided a copy of the grant of probate and the Will Clause X of the Will provides that after payment of all just debts, funeral and testamentary expenses and all taxes and duties, the Executors are to distribute the net Estate by dividing it between the named beneficiaries, who are all foreign residents Clause X of the Will contains some inconsistency of referencing and spelling of the names of the foreign beneficiaries The Executors were unable to determine with certainty the intended beneficiaries The foreign beneficiaries each claim an entitlement to the assets of the Estate. They have collectively agreed the most probable interpretation of clause X of the Will was an equal split of the residue of the Estate between all of the foreign beneficiaries You have provided a copy of a proposed Deed. The Deed is intended to record the agreement of the foreign beneficiaries and the Executors in relation to the interpretation of clause X of the Will. Clause X of the Deed says that the testament of the deceased is to be interpreted to mean that all persons named should inherit equally The Deed has not yet been signed The Executors have not yet made any distributions to the foreign beneficiaries Clause Y of the Will gifted $X to a resident of Australia. This amount is not in dispute and has been distributed The Executors have lodged the income tax return for the Estate for the year ended 30 June XXXX on the basis that no beneficiary was presently entitled to the income of the Estate A Notice of Assessment for the year ended 30 June XXXX was issued by the Australian Taxation Office. The resulting tax liability of $X was due on XXXX Some of the deceased’s Australian relatives made preliminary enquiries with the Executors and the legal firm assisting the Executors in relation to prior wills in which they were recipients of gifts from the deceased. It was unclear following those enquiries whether any eligible persons would make an application for a family provision order under Chapter 3 of the Succession Act 2005 To date no application has been lodged and the 12 month general limitation period since the deceased’s date of death has expired The only remaining liabilities and anticipated expenses of the Estate are the taxation liabilities plus legal and accounting fees associated with administering the Estate The income of the Estate for the relevant period has mainly consisted of capital gains and a liquidator’s distribution You have advised the foreign beneficiaries will not become presently entitled to the income of the Estate at least until the date of execution of the Deed The Executors could arrange for the striking of accounts for the periods before and after execution of the Deed No distributions will be made to the foreign beneficiaries until the Deed has been executed by all relevant parties The distributions to the foreign beneficiaries will be made upon or shortly after execution of the deed.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 99 | Income Tax Assessment Act 1936 Section 99A | Income Tax Assessment Act 1936 Subsection 99A(2) | Income Tax Assessment Act 1936 Subsection 99A(3A) | Income Tax Assessment Act 1936 Paragraph 99A(3)(a) | Income Tax Assessment Act 1936 Section 98 | Income Tax Assessment Act 1936 Subsection 98(2A) | Income Tax Assessment Act 1936 Subsection 98(3).