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Edited version of your written advice
Authorisation Number: 1051515490037
Date of advice: 13 May 2019
Ruling
Subject: Income tax – trading stock
Question 1
Does Section 70-90 of the Income Tax Assessment Act 1997 (ITAA 1997) apply to the disposal of livestock by the Trust Estate?
Answer
Yes. Where the estate carries on a business which involves livestock the transferring of the livestock to a beneficiary is considered a transaction outside the ordinary course of business.
Question 2
Does the market value of livestock on the day of disposal, including where an in-specie distribution of livestock is made to beneficiaries, form part of the assessable income of the trust estate?
Answer
Yes. Where a taxpayer disposes of trading stock outside the ordinary course of business, the market value of the item on the day of disposal must be included in the assessable income of the entity, which in this case is the Trust Estate.
Question 3
If the estate makes a distribution of the income to beneficiaries that are presently entitled to that distribution will the Trust Estate include the net income distribution in the statement of distribution?
Answer
Yes. The Trust Estate will need to include the value of the trading stock in the net income of the estate and subsequently if a beneficiary is presently entitled to this income, the income should form part of the distribution to the beneficiary. This amount should also be included on the statement of distribution.
Question 4
Can section 70-100 of the ITAA 1997 apply to the transfer of trading stock?
Answer
No. No roll over is available under section 70-100 of the ITAA 1997 as the 25% test cannot be satisfied this is because the beneficiaries will not have an interest in the trading stock prior to the transfer.
This ruling applies for the following period:
Year ending 30 June 2018
The scheme commences on:
1 July 2017
Relevant facts and circumstances
The estate of Individual A (Trust estate) was created at the date of death of Individual A (the deceased) on XX January 20XX.
The deceased was a primary producer during their lifetime in partnership with their spouse Individual B.
Individual B deceased on X July 20XX.
The Trust Estate continued to derive primary production income.
The primary production livestock remaining in the Trust Estate is to be distributed to the beneficiaries as per the terms of the Will of the deceased.
Several of the beneficiaries are primary producers.
No beneficiary had a share in the primary production livestock prior to the death of the deceased.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 70-90
Income Tax Assessment Act 1997 section 70-100
Income Tax Assessment Act 1936 Division 6 of Part III
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