Issue
Are prior year losses of a deceased estate subject to the trust loss provisions of Schedule 2F to the Income Tax Assessment Act 1936 (Schedule 2F) where the year of the tax return lodged includes the fifth anniversary of deceased's death or an earlier income period?
Decision
No. The trust loss provisions of Schedule 2F will not apply as the deceased estate will be an 'excepted trust' under paragraph 272-100(c) of Schedule 2F for the years of income up to and including the year in which the fifth anniversary of the deceased's death.
Facts
The deceased was involved in business activities before their death.
The deceased died during the year ended 30 June 1996.
The trustee continued to carry on the business activities of the deceased for a number of years after the deceased's death.
In carrying on these activities The trustee accumulated substantial losses in carrying on these activities.
The trustee sought to recoup some of these losses in the year ended 30 June 2001.
Reasons for Decision
Sections 266-25 and 267-20 of Schedule 2F detail the trust loss provisions as they relate to fixed and non-fixed trusts, respectively. There is an additional requirement at section 270-10 of Schedule 2F dealing with schemes to take advantage of deductions, eg. losses within such trusts.
In sections 266-25 and 267-20 Schedule 2F a trust that is an 'excepted trust' at all times during the test period is not subject to any conditions specified in those provisions and so is not precluded from claiming prior year tax losses under those provisions.
Furthermore, a trust that is an 'excepted trust' (excluding a Family Trust, being a trust that has lodged a Family Trust Election) at the time scheme assessable income is earned, (excluding a Family Trust, being trust that has lodged a Family Trust Election) is not subject to the provisions of section 270-10 Schedule 2F and is not restricted in claiming prior year losses under those provisions.
Section 272-100 at Schedule 2F defines an 'excepted trust'.
A deceased estate is treated as an 'excepted trust' from the date of death of the individual until the end of the year of income in which the fifth anniversary of death occurs.
The deceased estate is an 'excepted trust' for the purposes of Schedule 2F until 30 June 2001, being the end of the year of income in which the fifth anniversary of the deceased's death occurs.
The trust loss provisions will need to be considered by the trustee for all tax returns after the year ended 30 June 2001.