1052012155601 | Legal database

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Edited version of private advice

Authorisation Number: 1052012155601

Date of advice: 26 July 2022

Ruling

Subject: Deceased estate - excepted income

Question

Is the income derived from the investment of the proceeds from the deceased estate excepted income and subject to the same tax rates as an individual resident taxpayer?

Answer

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX.

The scheme commences on:

01 July 20XX.

Relevant facts and circumstances

The deceased passed away without leaving a valid will.

The deceased estate held a number of real and personal assets.

The deceased passed away leaving 2 children.

One of the children is under the age of 18.

The deceased's spouse was granted Letters of Administration over the deceased estate.

The deceased's property real and personal devolved under the law of intestacy to the deceased's spouse and children.

The minor inherited funds and these funds were deposited into a bank account in the name of the minor.

No other funds have, or will be, in the future deposited into the bank account held by the minor.

Relevant legislative provisions

Income Tax Assessment Act 1936 Division 6AA

Income Tax Assessment Act 1936 Subsection 102AC(1)

Income Tax Assessment Act 1936 Subsection 102AE(1)

Income Tax Assessment Act 1936 Subsection 102AE(2)

Income Tax Assessment Act 1936 Subparagraph 102AE(2)(c)(i)

Income Tax Assessment Act 1936 Paragraph 102AE(2)(f)

Reasons for decision

Tax Payable by a Minor

At law, a minor is a person under the age of 18, this being one form of legal disability. A minor does not have full legal competence to do all that the law requires them to do.

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), who is under 18 years of age on the last day of the income year.

In this case, the taxpayer is under 18 years of age, and a prescribed person for the purposes of subsection 102AC(1) of the ITAA 1936.

As a 'prescribed person', Division 6AA of the ITAA 1936 will apply to so much of their assessable income that is not excepted income (subsection 102AE(1) of the ITAA 1936).

Subsection 102AE(2) of the ITAA 1936 lists the various types of assessable income of a minor which is excepted income. Under this subsection, assessable income derived by a minor from the investment of any property that devolved upon the minor from the estate of a deceased person, is listed as excepted income (subparagraph 102AE(2)(c)(i) of the ITAA 1936).

In this case, any income earned from the investment of the distributed inheritance amount from the estate of the deceased will be considered excepted income under subparagraph 102AE(2)(i) of the ITAA 1936 and is excluded from being taxed at the special rates under Division 6AA of the ITAA 1936. Therefore, the income earned from the distributed amount will be subject to the normal taxation rates that apply to individual's resident in Australia.

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