Question Will the Commissioner exercise the discretion under section 99A of the Income Tax Assessment Act 1936 (ITAA 1936)to tax the income of the trust estate under section 99 of the ITAA 1936?
Yes. This ruling applies for the following periods : 1 July XXXX to 30 June XXXX
Facts The deceased estate was established under the will of the late Individual A, who passed away on XXXX. There is a definable relationship ordinarily of blood or marriage between the deceased and the beneficiaries. The Estate's assets consist of the following. Shares in Company A 100% ownership of this company was held by late Individual A. The shares were either acquired by late Individual A on establishment of the company or upon the the death of their spouse. Dividend distributions have been made prior to and following Individual A's death, including for the period from XXXX to XXXX, of $X in each income year. The dividends were paid out of retained profits held by the company prior to Individual A's death. Shares in Company B 100% ownership of this company was held by late Individual A. The shares were either acquired by late Individual A on establishment of the company or upon the the death of their spouse. Dividend distributions have been made prior to and following Individual A's death, including for the period from XXXX to XXXX, of $X in each income year. The dividends were paid out of retained profits held by the company prior to Individual A's death. Property
The Property was purchased in XXXX (settlement in respect of which occurred XXXX). Bank account The bank account for the Estate was established under Powers of Attorney granted to the Executors in XXXX, being after the grant of probate by the Court to the Executors. The proceeds of late Individual A's individual bank accounts held in their lifetime were transferred to this account as the personal accounts were closed. Balance Sheet for the Estate: XXXX > > $ Table 1: Balance sheet for the Estate: Assets Current Assets Cash at Bank X Total Current Assets X Non Current Assets Shares in Company A - at Market Valuation X Shares in Company B - at Market Valuation X Property - at Market Valuation X Total Non Current Assets X Total Assets X Liabilities Current Liabilities Contingent Liabilities - Legal Proceedings X Accrued Expenses X Taxation Liability 0 Total Current Liabilities X Total Liabilities X Net Assets X The deceased has not contributed to more than one estate for the beneficiaries. The trustee has not proceeded with the final distribution to beneficiaries within a three year period due to disputes that were resolved in XXXX year.
The Estate is liable for the Respondent's costs of both the court proceedings. To date the Respondent has not stated to the Estate the amount of costs to be paid by the Estate which they will agree to in order to satisfy the court costs orders in their favour. Due to the material unknown liabilities, no distributions have been made to any beneficiary of the Estate as at 1 XXXX. Given the time which has transpired since both the most recent Court costs order and the communication by the Estate's lawyer to the lawyers for the other party of the need for an independent valuation of the other party's costs (and the lack of communication from the other party), the Executors have commenced the process of liquidating the remaining assets of the Estate. Taxpayer's contentions The Taxpayer has made the following submissions to support the request for the exercise of the discretion:
The deceased estate is of the 'ordinary and traditional' kind and has been in existence for more than three years. There is no tax avoidance involved and the Commissioner's discretion to assess the trustee under section 99 of the ITAA 1936 for the years ended XXXX and XXXX due to the ongoing court case is appropriate. The Commissioner has discretion to assess the trustee under section 99 of the ITAA 1936 rather than under section 99A of the ITAA 1936. The decision to exercise discretion to the trustee under section 99 of the ITAA 1936 should be made due to the below reasons: 1. the Estate anticipates a material liability to the other party to the Court proceedings, currently unquantified, as a result of orders against the Estate in favour of that other party; 2. at the present time, the Executors are not prepared to be exposed to personal liability if they made any distribution to beneficiaries before at least knowing the potential quantum claimed by the other party to the Court proceedings; and
3. to date the Executors have not received, and accordingly the Executors await, any information from the other party to the Court proceedings of the amount he claims he is entitled by reason of the Court orders
Income Tax Assessment Act 1936 section 99A Income Tax Assessment Act 1936 section 99 Question Will the Commissioner exercise the discretion under section 99A of the ITAA 1936to tax the income of the trust estate under section 99? Summary Having regard to the relevant facts and circumstances, the Commissioner is of the opinion that it would be unreasonable that section 99A of the ITAA 1936 should apply in relation to the trust estate in relation to the relevant years of income. Accordingly, section 99 of the ITAA 1936 will apply. Detailed reasoning Sections 99 and 99A of the ITAA 1936 apply to assess the trustee of a trust estate on income to which no beneficiary is presently entitled, which is retained or accumulated by the trustee. Section 99A of the ITAA 1936 does not apply in relation t