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Edited version of your written advice
Authorisation Number: 1013009782715
Date of advice: 11 May 2016
Ruling
Subject: Distribution from a deceased estate
Question 1
Is the amount of unused annual leave distributed to you from the deceased estate assessable income?
Answer
No.
Question 2
Is the amount of unused long service leave distributed to you from the deceased estate assessable income?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2016
The scheme commenced on
On or after 1 July 2015
Relevant facts
Your spouse passed away.
You are the executor and sole trustee of the estate.
Under the terms of the will you are the sole beneficiary of the deceased estate.
At the time of death, your spouse was entitled to unused long service leave and unused annual leave from their previous employers.
The total amount paid into the bank account of the deceased estate in relation to this unused leave was $X.
The amounts were paid on by each employer into the bank account of the deceased estate on dd/mm/yyyy and dd/mm/yyyy.
The amount of $X will be distributed to you pursuant to the will.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 6-5.
Income Tax Assessment Act 1936 Section 99B.
Income Tax Assessment Act 1936 Section 101A.
Reasons for decision
Deceased estate
On the death of a person, the property of the deceased passes to their estate and legal control is exercised by an executor or administrator.
Any tax liabilities of the deceased person are paid out of the deceased estate. If assessable income, including interest, rent or employment income is received after a person's death, it is part of the deceased estate. The trustee is then liable for any tax due on those amounts.
However under section 101A of the Income Tax Assessment Act 1936 (ITAA 1936) amounts of unused annual leave and unused long service leave are exempt from tax when paid directly to the trustee of a deceased estate.
This is also highlighted in appendix 8 for the Trust tax return instructions which states:
Recreation leave and long service leave
Amounts of recreation leave and long service leave, ordinarily assessable under sections 83-10 and 83-80 of the ITAA 1997, are exempt from tax when paid directly to the trustee of a deceased estate.
The subsequent distribution of any amount of unused annual leave or unused long service leave to a beneficiary is also not assessable to the beneficiary as outlined below.
Ordinary income
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources during the income year.
The distribution of the money from a bank account is regarded as a distribution of corpus or capital amount.
A distribution of corpus received from a deceased estate is not considered to be ordinary income and therefore not assessable under subsection 6-5(2) of the ITAA 1997.
Statutory income
Section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.
Corpus from a deceased estate is not assessable income of a beneficiary (section 99B of the ITAA 1936).
Furthermore, there are no capital gains tax (CGT) consequences under the CGT provisions in relation to a distribution or entitlement of the corpus of a deceased estate.
Therefore, the money from the bank account containing the unused annual leave and unused long service leave of your late spouse is not regarded as ordinary or statutory assessable income under the ITAA 1936 or ITAA 1997.
Subsection 6-15(1) of the ITAA 1997 provides that if an amount is not ordinary or statutory income it is not assessable income. Consequently the amount received is not included in your assessable income.