ATO Interpretative Decision

ATO ID 2002/339 (Withdrawn)

Income Tax

Assessability of distributions from deceased estate - estate created before 20 September 1985
FOI status: may be released

This ATO ID is a simple restatement of the law and does not contain an interpretative decision.

This document incorporates revisions made since original publication. View its history and amending notices, if applicable.

CAUTION: This is an edited and summarised record of a Tax Office decision. This record is not published as a form of advice. It is being made available for your inspection to meet FOI requirements, because it may be used by an officer in making another decision.

This ATOID provides you with the following level of protection:

If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.

Issue

Is a beneficiary assessable under either section 6-5 or 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) on a distribution received from a deceased estate created before 20 September 1985, where the distribution is from the proceeds of the realisation of the deceased's properties situated in Australia?

Decision

No. A beneficiary is not assessable under either section 6-5 or 6-10 of the ITAA 1997 on a distribution received from a deceased estate created before 20 September 1985, where the distribution is from the proceeds of the realisation of the deceased's properties situated in Australia.

Facts

The taxpayer is a resident of Australia. A relative, who was a non resident of Australia, passed away before 20 September 1985. The relative's estate contained assets that were not transmitted to the deceased's legal personal representative (LPR) until after 19 September 1985. These assets were properties situated in Australia.

No other assets were acquired by the LPR after 19 September 1985.

When the administration of the deceased estate was finalised the LPR distributed to the beneficiary the proceeds of the sale of the deceased's assets.

Reasons for Decision

Subsection 6-5(1) of the ITAA 1997 states that assessable income consists of ordinary and statutory income. Subsection 6-5(2) of the ITAA 1997 provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.

Ordinary income has generally been held to include three categories, namely, income from rendering personal service, income from property and income from carrying on a business. In many instances there can be no dispute as to the character of a receipt, for example, salary, wages and interest payments are ordinary income.

A distribution from the realisation of the assets upon finalisation of the administration of a deceased estate is not income from property. The distribution resulted from the relationship between the taxpayer and the deceased. Consequently, the distribution from the deceased estate is not ordinary income.

Subsection 6-10(4) of the ITAA 1997 provides that the assessable income of a resident taxpayer also includes statutory income derived directly or indirectly from all sources during the income year. Section 10-5 of the ITAA 1997 lists the various types of statutory income which includes capital gains.

Subsection 128-15(2) of the ITAA 1997 states that the LPR or beneficiary is taken to have acquired the assets of the deceased on the date of death. Therefore the LPR is taken to have acquired the assets before 20 September 1985.

When the LPR disposes of the assets of the deceased estate, CGT event A1 happens ( section 104-10 of the ITAA 1997). However, as the LPR was taken to have acquired the properties before 20 September 1985, any capital gain or capital loss made from CGT event A1 happening on each disposal is disregarded (subsection 104-10(5) of the ITAA 1997). This means that the disregarded capital gain does not form part of the net income of the trust estate as defined in subsection 95(1) of the Income Tax Assessment Act 1936 (ITAA 1936) and, therefore, cannot be included in the taxpayer's assessable income pursuant to Division 6 of Part III of the ITAA 1936 and Subdivision 115-C of the ITAA 1997.

Subsection 6-15(1) of the ITAA 1997 states that if an amount is not ordinary income and not statutory income, it is not assessable income.

Accordingly, the distribution of proceeds from the realisation of assets of a deceased estate created before 20 September 1985 is not assessable income.

Date of decision: 23 October 2001

Year of income: Year ended 30 June 1998

Legislative References:
Income Tax Assessment Act 1997
   section 6-5
   subsection 6-5(1)
   subsection 6-5(2)
   section 6-10
   subsection 6-10(4)
   subsection 6-15(1)
   section 10-5
   section 104-10
   subsection 104-10(5)
   Subdivision 115-C
   subsection 128-15(2)

Income Tax Assessment Act 1936
subsection 95(1)

Keywords
Wills
Deceased estates
Legal personal representatives

Business Line: Small Business/Individual Taxpayers

Date of publication: 28 March 2002

ISSN: 1445-2782

history

	Date:	Version:
	23 October 2001	Original statement
You are here	23 June 2006	Archived

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