Edited version of your private ruling

Authorisation Number: 1012581976190

Ruling

Subject: Trust - deceased estate - three years

Question 1

Can the Estate claim the tax free threshold for the year ended 30 June 2014?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

The deceased passed away in 20XX.

For the days remaining in the 20XX financial year no income was earned by the estate.

The estate was not required to lodge a tax return.

The estate has lodged a 20YY income tax return.

A tax return is currently being completed for 20ZZ.

Relevant legislative provisions

Income Tax Assessment Act 1936 - Section 99

Income Tax Rates Act 1986 - Section 12

Income Tax Rates Act 1986 - Schedule 10 - Part 1

Reasons for decision

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 rates of tax for trustees assessed under section 99 of the ITAA 1936 are found in section 12(6) of the Income Tax Rates Act 1986 (ITRA 1986), which directs attention to Schedule 10 of the ITRA 1986. Part 1 of Schedule 10 of the ITRA 1986 identifies two classes of trustees for the purpose of determining the rates of tax that are to apply.

In the first class are trustees who are liable to be assessed under section 99 of the ITAA 1936 in respect of resident trust estates of a deceased person where the income is derived in the year of death of the deceased or in any one of the following two years. These trustees are liable to pay tax at the rates applicable to resident individuals.

The second class of trustees identified in Part 1 of Schedule 10 of the 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 (including the trustees of testamentary trusts) are liable to tax at the rates specified for resident individuals except that they do not benefit from the tax free threshold.

There is no discretion available to the Commissioner to extend the three year period to apply the lower rates of tax or vary the rates of tax applicable under section 99 of the ITAA 1936.

Taxation Determination TD 92/192 explains how the three year period is calculated as follows:

For the remainder of the financial year after the date of death and the next two financial years, as specified in the Income Tax Rates Act 1986 , Schedule 10, Part I.

Example

Joan passed away on 5 April 2011.

The first tax year for Joan's estate will cover the period 6 April 2011 to 30 June 2011.

The second tax year will be from 1 July 2011 to 30 June 2012.

The third tax year will be from 1 July 2012 to 30 June 2013.

If Joan's deceased estate earned taxable income of $6,000 or less during those first two tax years and $18,200 or less during the third tax year, there is no tax payable.

Based on the information provided, the deceased's date of death was in 20XX. The first tax year covered the period from the date of death to 30 June 20XX; the second tax period covered the period from 1 July 20XX to 30 June 20YY; and the third tax year covered the period 1 July 20YY to 30 June 20ZZ.

Therefore, the special progressive tax rates will apply from 1 July 20ZZ which is the fourth tax year.