Private ruling: Present entitlement deceased estate
Published: December 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Were your beneficiaries presently entitled for income tax purposes at 30 June 2013? | A1: Yes.

Relevant facts and circumstances: Prior to 30 June 2013, the deceased passed away, probate was granted and the payment of estate related expenses was completed, resulting in estate assets being available for distribution.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 97

Reasons for decision: Summary: Section 97 of the Income Tax Assessment Act 1936 provides a beneficiary who is not under a legal disability and who is presently entitled to a share of the income of a trust must include in their assessable income their share of the net income of the trust estate. The net income of the trust eased estate (and whether any beneficiary is presently entitled) is determined on the last day of each income year (30 June). This means that, on the last day of the income year, a beneficiary who is presently entitled will be assessed on their share of the net income for the whole of the income year. Taxation Ruling IT 2622 is about present entitlement during the stages of administration of deceased estates. Paragraph 17 of IT 2622 states where the administration of a deceased estate is completed during the course of an income year, the beneficiaries who are not under any legal disability are liable to bear tax on their shares of the net income of the estate for that year to which they are presently entitled. Paragraphs 11 and 13 of IT 2622 state a deceased is fully administered when the net residue is ascertained, that is, when an estate has been fully administered by payment or provision for the payment of funeral and testamentary expenses, death duties, debts, annuities and legacies and the amount of the residue thereby ascertained. IT 2622 illustrates the stages of administration of the estate of a deceased person as follows: DATE OF DEATH STAGES OF ADMINISTRATION 1. Burial of deceased. 2. Executor appointed by will or administrator appointed by Court. 3. Probate applied for and granted by Court. 4. Assets vest in executor who pays debts and testamentary expenses: Initial stage - net income of estate is applied to reduce debts, etc. Intermediate stage - part of the net income of estate that is not required to pay debts, etc., may be paid to beneficiaries. Final stage - debts, etc., are paid or provided for in full and net income of estate is available for distribution. ADMINISTRATION OF ESTATE IS COMPLETE In your case, the estate was fully administered relatively soon after the date of death, when the payment of estate related expenses was completed and the residual of the estate was ascertained. Therefore, the beneficiaries of the estate were presently entitled to the estate income for the year ended 30 June 2013 and they, the beneficiaries (and not the estate) are required to include their share of the estate income in their individual income tax returns for the year ended 30 June 2013.