Issue
Is a lump sum payment in arrears for unpaid wages and annual leave included in income assessed to the trustee of a deceased estate under section 101A of the Income Tax Assessment Act 1936 (ITAA 1936)?
Decision
Yes. A lump sum payment in arrears for unpaid wages and annual leave is included in income assessed to the trustee of a deceased estate under section 101A of the ITAA 1936.
Facts
The taxpayer is the executor, trustee and sole beneficiary of a deceased estate.
Prior to their death the deceased commenced proceedings to recover unpaid wages and annual leave entitlements from their previous employer.
The deceased's claim against the employer was resolved after their death. The taxpayer in their capacity as executor, trustee and beneficiary of the deceased estate agreed to accept a lump sum in full and final satisfaction of the claim.
The lump sum comprised amounts for unpaid wages including for a period that the taxpayer had been on annual leave.
There was no component in the lump sum for unused annual leave or long service leave.
Reasons for Decision
Subsection 101A(1) of the ITAA 1936 provides that where the trustee of a deceased estate receives an amount which would have been included in the assessable income of the deceased, had they received it during their lifetime, then that amount will be included in the assessable income of the deceased estate. That income will be deemed to be income to which no beneficiary is presently entitled.
Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year.
Salary and wages, including amounts paid to a taxpayer while on annual leave, are income according to ordinary concepts and therefore are assessable as ordinary income. Such income would normally be assessable on a receipts basis (paragraph 42 of Taxation Ruling TR 98/1).
An amount received as a lump sum representing arrears of salary and wages is also ordinary income and is assessable in the year received.
Had the deceased received the lump sum payment of arrears of salary and wages they would have been assessable on that amount when received. The trustee of the deceased estate is therefore required to include this lump sum payment in the assessable income of the trust under subsection 101A(1) of the ITAA 1936.
Subsection 101A(2) of the ITAA 1936 provides that subsection 101A(1) of the ITAA 1936 will not apply to an amount received by the trustee of a deceased estate where that amount is for unused annual or long service leave that would have been included in the assessable of the deceased under sections 83-10 and 83-80 of the ITAA 1997 if they had received it during their lifetime.
The lump sum did not comprise any component for unused annual leave or long service leave and therefore subsection 101A(2) of the ITAA 1936 does not apply.
The lump sum payment received by the taxpayer as trustee of the deceased estate will be included in the assessable income of the trust under section 101A of the ITAA 1936.
Amendment History
Date Part Comment 15 August 2014 Reason for Decision Replace references to sections 26AC and 26AD of the ITAA 1936 with sections 83-10 and 83-80 of the ITAA 1997 effective 1 July 2007. Legislative references Removed references to sections 26AC and 26AD of the ITAA 1936. Added ssections 83-10 and 83-80 of the ITAA 1997. Related ATO IDs Removed withdrawn ATO ID 2002/1050.
Date | Part | Comment
15 August 2014 | Reason for Decision | Replace references to sections 26AC and 26AD of the ITAA 1936 with sections 83-10 and 83-80 of the ITAA 1997 effective 1 July 2007.
Legislative references | Removed references to sections 26AC and 26AD of the ITAA 1936. Added ssections 83-10 and 83-80 of the ITAA 1997.
Related ATO IDs | Removed withdrawn ATO ID 2002/1050.