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Edited version of your private ruling
Authorisation Number: 1012436154628
Ruling
Subject: Declaring the income from a deceased estate
Question 1
Is the beneficiary presently entitled to the income of the deceased estate, and therefore has to declare the income in her individual income tax return?
Answer
Yes.
Question 2
Does the trustee of the deceased estate have to lodge an income tax return on an annual basis?
Answer
Yes
This ruling applies for the following period
Year ended 30 June 2005
Year ended 30 June 2006
Year ended 30 June 2007
Year ended 30 June 2008
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
The scheme commenced on
July 2004
Relevant facts
You have provided copies of the Death Certificate and the Will.
The Will contained the following clause:
4. I give the whole of my Estate to my Executors to hold on trust to apply as follows:
(i) To pay all just debts, funeral and other expenses;
(ii) To apply the income of my Estate to (named beneficiary) for their life;
(iii) Upon the death of (the named beneficiary), my Executors shall divide the capital of my Estate equally amongst those of the following as shall survive (the named beneficiary) by thirty days:
· three residuary beneficiaries
The named beneficiary is not under a legal disability. They have lodged individual income tax returns, declaring all the income from the trust investments. No deceased estate trust returns have been lodged.
Relevant legislative provisions
Income Tax Assessment Act 1936 Section 97
Reasons for decision
The wording in the Will indicates that the deceased estate has to be kept in existence for the lifetime of the income beneficiary. There is no testamentary trust formed. The residuary beneficiaries of the deceased estate are different to the income beneficiary and do not become entitled to the residue until the death of the income beneficiary, and they have to survive them by thirty days.
The executors/trustees of the estate have to hold the assets of the estate in trust for the beneficiaries and apply the income earned to the income beneficiary during their lifetime. The trustees are the legal owners of these assets and have the power to invest and change investments freely.
The deceased estate trust is still in existence and the trustees will have an obligation to lodge trust income tax returns showing the income derived by the trust estate investments and how it is distributed.
The income beneficiary has an indefeasible, absolutely vested interest in the income under the terms of the Will. They have the right to demand this income and therefore are considered to be presently entitled to the income. Because there is a beneficiary who is presently entitled to all of this income, the trustee will distribute the income to that beneficiary. Because the beneficiary is not under a legal disability they will be assessable on this income under section 97 of the Income Tax Assessment Act 1936. The trustee should show the Assessment Calculation Code 12 in the distribution block of the trust return for this distribution. This will mean that the trustee will not be assessable on this income that is distributed to the individual income beneficiary. The individual will declare this distribution in their income tax return.
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