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Edited version of your written advice
Authorisation Number: 1012723710292
Ruling
Subject: Commissioner's discretion
Question
Will the Commissioner exercise his discretion granted to under subsection 100AA(4) of the Income Tax Assessment Act 1936 (ITAA 1936) to treat the exempt entity beneficiary of the deceased estate as presently entitled to the income of the estate?
Answer:
Yes
This ruling applies for the following period
Year ended 30 June 2009
Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012
Year ended 30 June 2013
Year ended 30 June 2014
The scheme commenced on
1 July 2008
Relevant facts
The deceased passed away in the 2003-04 financial year.
The Public Trustee was appointed executor and probate was granted in the 2003-04 financial year.
The deceased named a tax exempt entity as the residual beneficiary of his estate.
The deceased died with overseas assets and the executors engaged solicitors in the overseas country to administer the deceased's overseas estate.
The solicitor's notified the executor that the deceased owned units in a foreign fund which were included in the residual estate.
The executor's believed that these units had been transferred to the residual beneficiary and the estate was fully administered in 2005.
It has now been discovered that the transfer did not take place and the fund has been making distributions of income to the estate which were, in turn, reinvested under a dividend reinvestment plan put in place by the deceased, meaning no income was ever received by the estate.
As a result, the tax exempt entity could not be notified of their entitlement within the time limit set out in subsection 100AA(1)(c) of the ITAA 1936.
Relevant legislative provisions
Income Tax Assessment Act 1936 - Section 100AA
Income Tax Assessment Act 1936 - Section 99A
Reasons for decision
Section 100AA of the ITAA 1936 is an anti-avoidance provision that applies to income tax exempt entities that are presently entitled to income of a trust estate.
Section 100AA of the ITAA 1936 treats an exempt entity as not being presently entitled to income of a trust where it has not been notified of its present entitlement within two months of the end of the relevant income year.
Where the trustee fails to give the exempt entity notice it is treated as though it is not presently entitled to the income. Instead the trustee is assessable on the amount under section 99A of the ITAA 1936.
The Commissioner has the discretion to disregard the trustee's failure to notify within the required time period.
The Commissioner is required to have regard to the following in exercising his discretion:
• the circumstances that led to the failure
• the extent to which the trustee has taken action to try to correct the failure and if so, how quickly that action was taken
• whether the Commissioner has exercised the discretion in the past and the circumstances in which this occurred
• any other matters that the Commissioner considers relevant.
In the current case, the executors were unaware that the units had not been transferred to the residual beneficiary until 2014 as no income was being received under the dividend reinvestment agreement. Once you became aware that the units remained assets of the estate you have attempted to rectify to situation.
Accordingly the Commissioner will exercise the discretion to disregard the failure of the executors to comply with section 100AA of the ITAA 1936.