Private ruling: Net income of a deceased trust estate
Date of advice: 8 November 2018
Published: January 2019
Ruling period: Income years ended 30 June 20XX to 30 June 20XX
Date scheme commenced: XX XXXX 20XX

Ruling: Q1: In respect of the net income of the Trust, would the trustee of the Trust be assessed under section 99 of the Income Tax Assessment Act 1936? | A1: Yes.

Relevant facts and circumstances: The person passed away in 20XX, and probate was granted subsequently. The person made a Will and codicils during his/her life. The person left his/her entire estate (after debts and funeral expenses) upon the terms of a Testamentary Trust as set out in the Will. The person’s estate was administered and completed in 2018, and the Testamentary Trust (the Trust) came into existence on the same day. The person was a resident of Australia for taxation purpose. The Trust is a resident Trust Estate.

Relevant legislative provisions: Income Tax Assessment Act 1936

Reasons for decision: Summary: Unless otherwise stated, all legislative references are to the Income Tax Assessment Act 1936 (ITAA 1936). Pursuant to subsection 101A(1), the trustee of the estate of a deceased taxpayer is assessed on amounts received after the death of the deceased that would have been assessable to the deceased had they been received during the deceased's lifetime - such amounts are deemed to be income to which no beneficiary is presently entitled. Tax rate applicable to the net income of a trust which represents income to which no beneficiary is presently entitled depends on whether the income is assessed under section 99 or section 99A. All such income falls initially within the ambit of section 99A. If the Commissioner is of the opinion that it would be unreasonable that section 99A should apply in relation to a trust estate that resulted from a will or a codicil: paragraph 99A(2)(a), section 99 would apply: subsection 99(1). Part I of Schedule 10 to the Income Tax Rates Act 1986 states that: In the case of a trustee who is liable to be assessed and to pay tax - (a) under section 98 of the Assessment Act in respect of a share of a resident beneficiary of the net income of a trust estate; or (b) under section 99 of the Assessment Act in respect of the net income or part of the net income of a resident trust estate, being the net income or part of the net income of the estate of a deceased person who died less than 3 years before the end of the year of income; the rate of tax in respect of that share of the net income or that net income or that part of that net income is the rate that would be payable under Part I of Schedule 7 if one individual were liable to be assessed and to pay tax on that income as his or her taxable income. In the current case, the Trust came into existence post the person passing away. Net income of the Trust is deemed to be income to which no beneficiary is presently entitled and is taxed in the hands of the trustee of the Trust. In accordance with Part I of Schedule 10 to the Income Tax Rates Act 1986, within the first three income years from the date that the person passed away, section 99 applies in assessing the net income in the hands of the trustee of the Trust. Therefore, for the first three income years ended 30 June 20XX, 30 June 20XX and 30 June 20XX from the date that the person passed away, the trustee of the Trust should be assessed and is liable to pay tax on the net income of the Trust estate as if it were the income of an Australian resident individual and were not subject to any deduction.