Private ruling: Income Tax - Deceased Estates
Date of advice: 23 December 2019
Published: March 2020
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you as the trustee of the State 1 deceased estate use the capital loss made by the trustee of the State 2 deceased estate of Person A? | A1: No | Q2: Will the Commissioner exercise his discretion under subsection 99A(2) of the Income Tax Assessment Act 1936 (ITAA 1936) to tax you, Person A, as trustee of the State 1 deceased estate, on income that no beneficiary is presently entitled to under section 99 of the ITAA 1936? | A2: Yes

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The deceased passed away on XX/XX/XXXX. They died intestate. At their death, the deceased owned the following assets: · State 1 property; and · State 2 property. As a result of legal advice received, separate applications for Letters of Administration were made in State 1 and State 2 with different entities appointed as administrators (trustees) of each deceased estate. The State 1 deceased estate is the subject of this private ruling. Person A, as trustee of the State 1 deceased estate, sold the State 1 property resulting in a capital gain. Person B, as trustee of the State 2 deceased estate, sold the State 2 property resulting in a capital loss. Person A has not yet distributed any funds from the deceased estate State 1 bank account or any other property to or on behalf of any beneficiary. Person A has not made any beneficiaries presently entitled to any income of the State 1 deceased estate. A choice has been made under section 115-230(2) of the Income Tax Assessment Act 1997 for Person A to be taken to be specifically entitled to all of the capital gain on the sale of the State 1 property.

Relevant legislative provisions: Income Tax Assessment Act 1936 Section 99 | Income Tax Assessment Act 1936 Section 99A | Income Tax Assessment Act 1997 Part 3-1 | Income Tax Assessment Act 1997 Division 102 | Income Tax Assessment Act 1997 Section 115-230

Reasons for decision: Detailed Reasoning - Capital loss: It is considered that the capital loss made by Person B as the trustee of the State 2 deceased estate cannot be used by Person A to offset the capital gain made by them as trustee of the State 1 deceased estate. There is no provision in the Income Tax Assessment Act 1997 (ITAA 1997) that would allow the transfer of a capital loss made by the trustee of one trust estate to the trustee of another trust estate. Capital losses that a taxpayer makes in an income year are offset against any capital gains made during the income year (section 102-5 of the ITAA 1997). If the capital losses are not absorbed in this way, they are carried forward to future income years, to be offset against future capital gains (subsection 102-15(3) of the ITAA 1997). | Detailed Reasoning - Commissioner's discretion: Sections 99 and 99A of the ITAA 1936 operate to tax trustees if there is part of the net income of a trust estate that is not taxed to a beneficiary under section 97 or the ITAA 1936 or to the trustee under section 98 of the ITAA 1936. Section 99A of the ITAA 1936, which imposes a higher rate of tax, applies automatically unless the trust estate is of a type specified in section 99A(2) of the ITAA 1936 and the Commissioner considers that it would be unreasonable for section 99A of the ITAA 1936 to apply. A trust estate that results from a will or intestacy is a type of trust estate in respect of which the Commissioner may form an opinion it would be unreasonable for the section to apply. Section 99A(3) of the ITAA 1936 sets out factors which the Commissioner can consider in deciding that it would be unreasonable for section 99A of the ITAA 1936 to apply. In forming an opinion for the purposes of subsection(2): (a) the Commissioner shall have regard to the circumstances in which and the conditions, if any, upon which, at any time, property (including money) was acquired by or lent to the trust estate, income was derived by the trust estate, benefits were conferred on the trust estate or special rights or privileges were conferred on or attached to property of the trust estate, whether or not the rights or privileges have been exercised; (b) if a person who has, at any time, directly or indirectly: (i) transferred or lent any property (including money) to, or conferred any benefits on, the trust estate; or (ii) conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of the trust estate whether or not the right or privilege has been exercised; has not, at any time, directly or indirectly: (iii) transferred or lent any property (including money) to, or conferred any benefits on, another trust estate; or (iv) conferred or attached any special right or privilege, or done any act or thing, either alone or together with another person or persons, that has resulted in the conferring or attaching of any special right or privilege, on or to property of another trust estate, whether or not the right or privilege has been exercised; the Commissioner shall have regard to that fact; and (c) the Commissioner shall have regard to such other matters, if any, as he or she thinks fit. After consideration of these factors, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA 1936 should apply in relation to the trustee of the State 1 deceased estate. Accordingly section 99 of the ITAA 1936 will apply.