Edited version of private advice

Authorisation Number: 1052125844159

Date of advice: 22 June 2023

Ruling

Subject: Commissioner's discretion - deceased estate

Question 1

Will the Commissioner exercise his discretion for the executor to be assessed under section 99 of the Income Tax Assessment Act 1936 for the income year ended 30 June 20XX?

Answer

Yes.

Question 2

If the answer to Question 1 is Yes, will the 50% capital gains tax discount apply to the capital gain from the sale of the property?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The deceased passed away on XX/XX/20XX.

During the following income year, the executor of the deceased estate sold a post-CGT property of the deceased.

As at the end of that income year, no beneficiary was presently entitled to the income of the estate or specifically entitled to any capital gains.

No special rights or privileges have been conferred on the estate or the property of the estate. There have been no other transfers of property to the estate. The estate has not borrowed, or lent out, any property (including money).

Relevant legislative provisions

Income Tax Assessment Act 1936 section 99

Income Tax Assessment Act 1936 section 99A

Income Tax Assessment Act 1997 paragraph 115-10(c)

Income Tax Assessment Act 1997 section 115-25

Income Tax Assessment Act 1997 subparagraph 115-100(a)(ii)

Income Tax Assessment Act 1997 section 115-120

Income Tax Assessment Act 1997 section 115-222

Income Tax Assessment Act 1997 section 115-225

Reasons for decision

Question 1

Will the Commissioner exercise his discretion for the executor to be assessed under section 99 of the Income Tax Assessment Act 1936 for the income year ended 30 June 20XX?

The Commissioner will generally exercise his discretion to tax the trustee of a deceased estate at the trustee's individual marginal rate under section 99 of the Income Tax Assessment Act 1936 (ITAA 1936) rather than at the highest marginal rate under section 99A of the ITAA 1936 unless tax avoidance is involved. In considering this, the Commissioner will have regard to the matters set out in subsection 99A(3) of the ITAA 1936.

Taking into account those matters with respect to the present circumstances, the Commissioner has formed the opinion that it would be unreasonable that the penalty rate under section 99A of the ITAA 1936 apply. Therefore, the Commissioner will exercise his discretion to assess the executor under section 99 of the ITAA 1936.

Question 2

If the answer to Question 1 is Yes, will the 50% capital gains tax discount apply to the capital gain from the sale of the property?

Division 115 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with discount capital gains.

Paragraph 115-10(c) of the ITAA 1997 provides that a trust can be eligible to make a discount capital gain.

For the purposes of the 12-month requirement set out in section 115-25 of the ITAA 1997, the trustee of a deceased estate is deemed to have acquired a deceased's post-CGT assets when the deceased acquired them (section 115-30 of the ITAA 1997). Therefore, in this case the 12-month requirement is met for the disposal of the property.

Subparagraph 115-100(a)(ii) states that the discount percentage is 50% if the discount capital gain is made by a trust that is not a complying superannuation entity and section 115-120 of the ITAA 1997 does not apply to the gain.

Section 115-120 of the ITAA 1997 applies to deny a trustee the discount where the trustee is liable to be assessed and pay tax under section 98 of the ITAA 1936 in respect of a beneficiary who was a foreign or temporary resident.

In this case the trustee will be assessed under section 99 of the ITAA 1936, not section 98 of the ITAA 1936, so section 115-120 of the ITAA 1936 does not apply.

Consequently, the deceased estate is entitled to a 50% CGT discount percentage under subparagraph 115-100(a)(ii) of the ITAA 1997 for the capital gain made on the disposal of the property.

Sections 115-222 and 115-225 of the ITAA 1997 also required consideration. If a trustee is assessed under section 99 of the ITAA 1936 then under subsections 115-222(2) and 115-225(1) of the ITAA 1997 the discounted capital gain is assessed to the trustee. If a trustee is assessed under section 99A of the ITAA 1936 then under paragraph 115-222(4)(b) of the ITAA 1997 twice the discounted capital gain is assessed to the trustee, that is, the discount is removed. In the present case, the trustee will be assessed under section 99 of the ITAA 1936 and therefore the discount is not removed.

To summarise, applying the relevant provisions of Division 115 of the ITAA 1997 results in the 50% CGT discount being applicable to the capital gain made on the sale of the property.

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