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Edited version of private ruling
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Ruling
Subject: Deceased Estate - Excepted income
Question 1
Will the net income from the Estate to which the beneficiary (minor) is presently entitled, be treated as excepted income if the property devolved directly to them under intestacy?
Answer
Yes, the net income from the Estate to which the beneficiary (minor) is presently entitled, be treated as excepted income if the property devolved directly to them under intestacy?
The scheme commences on:
1 July 2009
Relevant facts and circumstances
The deceased, passed away without leaving a valid will.
The deceased's parent, was granted Letters of Administration over the deceased estate.
The previous application for ruling ruled that the income from the deceased estate is excepted income within the meaning of section 102AG (2) of the Income Tax Assessment Act 1936 (ITAA 1936) and will be taxed accordingly.
You are therefore of the opinion that as the circumstances remain unchanged the income from the deceased estate is excepted income within the meaning of section 102AG (2) of the Income Tax Assessment Act 1936 (ITAA 1936) and is to be taxed accordingly
Reasons for decision
Excepted income
Division 6AA of the Income Tax Assessment Act 1936 (ITAA 1936) ensures that special rates of tax and a lower tax free threshold apply in working out the basic income tax liability on taxable income, other than excepted income, derived by a prescribed person.
A 'prescribed person' is defined in subsection 102AC (1) of the ITAA 1936 to include any person, other than an 'excepted person' (as defined in subsection 102AC (2) of the ITAA 1936), under 18 years of age at the end of the income year.
The deceased's son is a 'prescribed person' for the purposes of Division 6AA of the ITAA 1936.
Division 6AA of the ITAA 1936 will apply, where the beneficiary of a trust is a 'prescribed person', to so much of the beneficiary's share of the net income of the trust that is not 'excepted trust income' (subsection 102AG(1) of the ITAA 1936).
Subsection 102AG(2) of the ITAA 1936 lists the various types of income of a trust estate which are 'excepted trust income' in relation to the beneficiary of the trust estate.
Assessable income derived by a trust which resulted from an intestacy or an order of a court in relation to the estate of a deceased person, of the provisions of the law relating to the distribution of the estates of persons who die intestate, is listed as 'excepted trust income' (subparagraph 102AG(2)(a)(ii) of the ITAA 1936).
Therefore, the net income of the estate to which the deceased's child is presently entitled is 'excepted trust income' under subsection 102AG (2) of the ITAA 1936. This is based on the stated fact that the property devolved directly to the deceased's child under intestacy.
Beneficiary under legal disability receiving excepted income only
Where a minor beneficiary is presently entitled but under a legal disability, subsection 98(1) of the ITAA 1936 applies to assess the trustee on the beneficiary's share of the trust income, as if it were income of an individual taxpayer. The trustee will be assessed on the beneficiary's share of the trust income from all sources attributable to the period when the beneficiary was a resident.
Where the beneficiary receives no other income apart from their share of the trust income the beneficiary is not required to lodge a personal income tax return because the trustee will be paying tax on their behalf. However, a return will be required where the beneficiary is a beneficiary in more than one trust or receives income from other sources or if excess imputation credit is involved. To prevent double taxation a credit for the tax already paid or payable by the trustee on behalf of the beneficiary is allowed to the beneficiary.
The above answer in relation to the excepted income is relevant only to the extent to which the minor beneficiary is presently entitled to the net income of the trust.
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