Edited version of private advice

Authorisation Number: 1051840255364

Date of advice: 19 May 2021

Ruling

Subject: Presently entitled beneficiaries

Question1

Does the trustee have the ability to make beneficiaries presently entitled to the income and capital gain of the estate during the intermediate stage of administration?

Answer

Yes.

Taxation Ruling IT 2622: Income tax: present entitlement during the stages of administration of deceased estates states that a trustee may make a distribution during the intermediate stage of administration to beneficiaries if it is apparent that part of the income of the estate will not be required to either pay or provide for debts. In such a situation, it is accepted that the beneficiaries are presently entitled to the income distributed to them.

Question 2

Will the trustee be assessed under section 99 of the Income Tax Assessment Act 1936 on the income and capital gain to which the beneficiaries will be made presently entitled?

Answer

No.

Where a beneficiary of a trust estate is presently entitled to any income of the trust estate and is not under a legal disability, the beneficiary shall be assessed on that income and not the trustee of the estate. More information on presently entitled beneficiaries can be found by searching "QC 40484" on ato.gov.au

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on XXXX.

Probate was granted and an executor was appointed (the trustee).

The deceased's will provided that specific gifts be made to X individual beneficiaries and stated that the following are the residuary beneficiaries of the estate held in equal shares as tenants in common:

•         Entity A; and

•         Entity B.

Entity A and Entity B are exempt entities and residents of Australia for income tax purposes during the income year ending 30 June 20XX.

The deceased estate comprised of various assets of which included two properties:

• Property A
• Property B

Property A and Property B were sold. The estimated net capital gain made on the disposal of the properties is $X.

The estate has derived rental and dividend income during the 20XX income year.

The Trustee intends to make the residuary beneficiaries presently entitled by taking the following steps (collectively, the income and capital distribution):

• The Trustee will resolve to make Entity A and Entity B each presently entitled to XX% of rental and dividend income derived since 1 July 20XX and XX% of the gross capital gain made from disposal of Property A and B.
• The Trustee will provide written notice to both Entity A and Entity B advising of the intention to make each of them presently entitled to XX% of rental and dividend income derived since 1 July 20XX and XX% of the gross capital gain made from disposal of Property A and B.
• The Trustee will advise of the proposed dates by which they will pay each of the beneficiaries their respective distributions.
• The Trustee will request a written response from Entity A and Entity B in relation to the above.
• Unless the Trustee receives a written response from either Entity A and Entity B disclaiming their present entitlement, they will pay Entity A and Entity B their respective distributions in cash.
• These cash payments will be made in two transactions, with the first payment in MM/YY and the second and residual payment in MM/YY.
• The Trustee intends to complete the income and capital distribution on or before 31 August 20XX. That is, within two months of the year ended 30 June 20XX.

The estate is currently in the intermediate stage of administration.

The Trustee has determined that part of the net income of the trust will not be required to pay for debts, along with taking into consideration the distributions to be made to the other beneficiaries, to reach the point of exercising their discretion to pay some of the trust estate income to the beneficiaries.

The Trustee intends to complete administration of the estate shortly after completion of the income and capital distributions. It is expected that administration of the estate will be completed on or before 30 June 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1936 section 97

Income Tax Assessment Act 1936 section 99

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