Edited version of your private ruling

Authorisation Number: 1012437934908

Ruling

Subject: Deceased estate - taxation rates

Question 1

Will the Commissioner exercise his discretion to extend the period which the executor of the deceased estate is taxed at the concessional rates set out in Schedule 10 of the Income Tax Rates Act 1986?

Answer

No

This ruling applies for the following periods

Year ending 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2012

Relevant facts and circumstances

The deceased died in year ended 30 June 20XX.

At the time of the deceased's death, the deceased owned and operated a farm (the property).

Following the deceased's death, a dispute arose over the inheritance of the deceased's assets. As a result of the dispute, a caveat was lodged on the title of the property, preventing distribution.

The executor continued to operate the farm on the property following the deceased's death.

The parties to the dispute reached an agreement in the year ended 30 June 20YY. Under this agreement, the property would be listed for sale on or before XX date, and following the sale of the property, the executor would organise a clearing sale for the plant, equipment and any remaining livestock.

The property has been listed for sale, but has not yet been contracted for sale.

Relevant legislative provisions

Income Tax Rates Act 1986 Subsection 12(6)

Income Tax Rates Act 1986 Schedule 10

Income Tax Rates Act 1986 Section 14

Income Tax Assessment Act 1936 Section 99A

Income Tax Assessment Act 1936 Section 99A(2)

Income Tax Assessment Act 1936 Section 99A(3A)

Income Tax Assessment Act 1936 Subsection 99A(3)(a)

Income Tax Assessment Act 1936 Section 99

Income Tax Assessment Act 1936 Paragraph 102AG(2)(c)

Reasons for decision

Summary

The Commissioner does not have the discretion to extend the period which the executor of the deceased estate is taxed at the concessional rates.

Detailed reasoning

Sections 99 and 99A of the Income Tax Assessment Act 1936 (ITAA 1936) apply to assess the trustee on income to which no beneficiary is presently entitled, which is retained or accumulated by the trustee. In considering these sections, we must first consider section 99A.

Section 99A applies in relation to all trusts unless: 

· the trust is a deceased estate;

· the trust is bankrupt estate;

· the trust is a trust that consists of property referred to in paragraph 102AG(2)(c) and the Commissioner forms the opinion that it would be unreasonable to apply section 99A in such circumstances. 

Section 99A(2) of the ITAA 1936 outlines the circumstances when the Commissioner may apply his discretion not to assess a trust using section 99A of the ITAA 1936. Section 99A of the ITAA 1936 assesses the income of a trust where no beneficiary is presently entitled at the top marginal rate of tax. If the Commissioner's discretion under subsection 99A(2) of the ITAA 1936 is exercised, the trust's income is taxed at a concessional rate of tax.

The general practice is to assess the income of a deceased estate trust under section 99 of the ITAA 1936 unless there is tax avoidance involved. Deceased estates of the 'ordinary and traditional' kind (whose assets come directly from the assets of the deceased) are assessed under that section.

The trust is a deceased estate and the assets were held at the date of death. The deceased estate is of the 'ordinary and traditional kind'. The income has been earned from the farm, which is an asset of the deceased estate. In these circumstances, the Commissioner will exercise his discretion not to assess the trust under section 99A of the ITAA 1936, choosing instead to assess the trust under section 99 of the ITAA 1936.

The second class of trustees identified in Part 1 of Schedule 10 of the Income Tax Rates Act 1986 (ITRA 1986) comprises trustees liable to be assessed under section 99 of the ITAA 1936 in respect of income of a resident trust estate, other than the estate of a person who died fewer than three years before the end of the income year.

These trustees are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold.

Instead, a reduced tax free threshold of $416 applies. On income between $416 and $594 the rate of tax applied is 50% (section 14 of the ITRA 1986).

The executor is responsible for lodging the deceased estate's tax return and paying the resulting tax liabilities.

There is no discretion available under the legislation to extend the period for which the trustee is entitled to concessional rates beyond three income years following the deceased's death.