Private ruling: Taxation of deceased estate
Published: May 2013
Ruling period: Year ending 30 June 2012 | Year ending 30 June 2013 | Year ending 30 June 2014 | Year ending 30 June 2015 | Year ending 30 June 2016
Date scheme commenced: 1 July 2011

Ruling: Question and answer | Will the Commissioner exercise his discretion to assess undistributed income of a deceased estate under section 99 of the Income Tax Assessment Act 1936 ? | Yes.

Relevant facts and circumstances: The deceased died. The estate was created by will and provides that the investments be held in trust for the infant beneficiaries.

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 Rates Act 1986 Subsection 12(9).

Reasons for decision: Summary: Sections 99 and 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to assess a trustee on income to which no beneficiary is presently entitled or income which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A. Section 99A applies in relation to all trusts unless: · the trust resulted from a will; subparagraph 99A(2)(a)(i); · the trust is bankrupt estate; paragraphs 99A(2)(b) and (c); or · the trust is a trust that consists of property referred to in paragraph 102AG(2)(c); and the Commissioner forms the opinion that it would be unreasonable to apply section 99A in such circumstances. The applicable rate of tax under section 99A is set in subsection 12(9) of the Income Tax Rates Act 1986 (ITRA 1986) at 47%, which is imposed from the first dollar of taxable income. Consequently, the favourable exercise of the Commissioner's discretion under subsection 99A(2) means the highest rate of income tax does not apply to trust estates resulting from a will, codicil, etc. These include both the estate of a deceased person and testamentary trusts established pursuant to the terms of a will. We will now consider section 99 of the ITAA 1936. Subsection 99(2) of the ITAA 1936 states that where there is no part of the net income of a resident trust estate: § that is included in the assessable income of a beneficiary of the trust estate in pursuance of section 97; § in respect of which the trustee of the trust estate is assessed and liable to pay tax in pursuance of section 98; or § that represents income that which a beneficiary is presently entitled that is attributable to a period when the beneficiary was not a resident and is also attributable to sources out of Australia, the trustee shall be assessed and is liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident and were not subject to any deduction. In your case, as the Estate was formed out a will and as the Commissioner will exercise his discretion to allow the income from the estate to be taxed at individual rates under section 99 of the ITAA 1936, income tax will be assessed to the trustee and they are liable to pay tax on the net income of the trust estate as if it were the income of an individual who was a resident and were not subject to any deduction.