Private ruling: Assessable income of a deceased estate
Date of advice: 9 January 2019
Published: April 2019
Ruling period: Year ending 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the Business Services Wage Assessment Tool (BSWAT) Payment Scheme payment in arrears assessed to the Trustee of the Estate in the 20XX-XX financial year under section 101A of the Income Tax Assessment Act 1936 (ITAA 1936)? | A1: Yes | Q2: Will the Trustee be assessed in Australia as a non-resident trust estate under section 99 of the ITAA 1936? | A2: Yes | Q3: Is the Trustee of the Estate entitled to a lump sum in arrears tax offset in respect of the BSWAT payment? | A3: No

Relevant facts and circumstances: The deceased passed away in 20XX. The executor appointed under his will is a not an Australian resident. In the 20XX-XX financial year, the Estate received a letter of offer for the Business Services Wage Assessment Tool (BSWAT) Payment Scheme (the Offer) from the Department of Social Services for an amount calculated for periods prior to the deceased’s death. The BSWAT payment was not in relation to unused annual or long service leave. The Offer was accepted in the 20XX-XX financial year. The Estate received no income in the 20XX-XX financial year.

Relevant legislative provisions: Income Tax Assessment Act 1936 section 99 | Income Tax Assessment Act 1936 section 99A | Income Tax Assessment Act 1936 section 101A | Income Tax Assessment Act 1936 section 159ZR | Income Tax Assessment Act 1936 section 159ZRA

Reasons for decision: Summary: Section 101A of the ITAA 1936 applies to amounts earned by a taxpayer during his or her lifetime but not received until after his or her death. Under this section, where the trustee of a deceased estate receives any amount which would have been assessable income in the hands of the deceased person if it had been received by him or her during his or her lifetime, that amount is included in the assessable income of the trust estate and is deemed to be ‘income to which no beneficiary is presently entitled’ for taxation purposes. This will be the case regardless of when the amount is distributed to beneficiaries of the Estate. In this case, the deceased was entitled to the BSWAT amount during his/her lifetime and the amount would have been assessable income in his/her hands had it been received during his/her lifetime. Therefore the BSWAT payment is assessed to the trust as income to which no beneficiary is presently entitled pursuant to section 101A of the ITAA 1936. Trust income to which no beneficiary is presently entitled is assessed under section 99A of the ITAA 1936 (at penalty rates) unless the Commissioner considers that it would be unreasonable to do so. Where a trust estate resulted from a will, a codicil or an order of a court that varied or modified the provisions of a will or a codicil, section 99A of the ITAA 1936 will not apply unless there is tax avoidance involved. Having regard to the factors in section 99A of the ITAA 1936, the Commissioner considers that it would be unreasonable to apply section 99A in this case. Where section 99A of the ITAA 1936 does not apply, the income of a deceased estate to which no beneficiary is presently entitled is assessed under section 99 of the ITAA 1936. The rate of tax applied under this section will depend on the residency of the trust estate and if the income is from an Australian source. Subsection 95(2) of the ITAA 1936 provides that a trust estate will be a resident trust estate if in an income year if the trustee as a resident during that year or the central management and control of the trust was in Australia. Subsection 95(3) of the ITAA 1936 further adds that a trust estate that is not a resident trust estate is a non-resident trust estate for that year. In this case, the trustee of the deceased estate not an Australian resident and, as such, central management and control of the Estate is not in Australia. Therefore, the Estate is considered to be a non-resident for taxation purposes. Under section 159ZRA of the ITAA 1936, a taxpayer will be entitled to a tax rebate where his or her assessable income includes an ‘eligible’ lump sum. A BSWAT payment is considered an eligible lump sum for the purposes of the rebate (159ZR of the ITAA 1936). However, subsection 159ZRA(2) limits the availability of the rebate to natural persons (excluding those acting in their capacity as trustees). As discussed above, the trustee is assessed on the BSWAT payment and is therefore ineligible for the lump sum in arrears rebate.