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Edited version of your written advice
Authorisation Number: 1013137066286
Date of advice: 6 December 2016
Ruling
Subject: Present entitlement
Question
Are the beneficiaries presently entitled to a share of the income and capital of the Estate as at 30 June 2016?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2016
The scheme commences on
1 July 2015
Relevant facts and circumstances
The deceased owned a parcel of land.
The land was compulsorily acquired.
Compensation was received on in the 2015-16 financial year. The compensation had income and capital components.
The amount of compensation (including the interest component) is currently on deposit earning further interest.
The relevant beneficiaries have been identified and the executor is awaiting documents to verify they are the relevant beneficiaries.
The executors are ready to distribute income to the relevant beneficiaries.
Relevant legislative provisions
Income Tax Assessment Act 1936 Division 6
Income Tax Assessment Act 1936 section 97
Reasons for decision
In a deceased estate, whether a beneficiary is presently entitled to a share of the income of a trust estate for the purposes of Division 6 of the Income Tax Assessment Act 1936 (ITAA 1936) depends on:
n the stage reached in the administration of the deceased estate
n the terms of the deceased's will or codicil, trust law and principles enunciated and orders made by the Courts
n whether any discretionary payments have been made to the beneficiary by the executor or trustee.
Division 6 of the ITAA 1936 requires the ascertainment of the net income of the trust estate. The net income of the trust is then assessed to the beneficiary or to the trustee depending on whether the beneficiary is presently entitled to income of the trust estate or is under a legal disability.
Beneficiaries cannot enjoy present entitlement to income derived by a deceased estate during the administration of the estate. Income of a deceased estate in income years before the administration of the estate is complete, is the income of the executors or administrators and is not income of the beneficiaries.
However, paragraph 15 of Income Tax Ruling IT 2622 states that:
Where residue of the estate has been ascertained and the estate has been fully administered, residuary beneficiaries enjoy present entitlement to income derived by the estate.
The ruling acknowledges that the administration of the estate does not have to reach the stage where the estate is wound up for beneficiaries to enjoy present entitlement to the income of the estate. Once the executor has provided for all debts and provided for distributions of specific assets or legacies, it will be possible to ascertain the residue with certainty.
In the circumstances we accept that the beneficiaries were presently entitled to the income and capital of the Estate in the 2015-16 financial year.