The Tax obligations of a Legal Personal Representative · recipient of CPA Australia’s 2016 Henry Fox Award for service to Public Prac,ce. Ian is a Fellow of CPA Australia, a Cer4ﬁed

Written by:

Ian Raspin FCPA, CTA, TEP

Mark Morris LLB B.Comm, CPA, FTIA

The Tax obligations of a Legal Personal Representative

... specialising in the taxationof Estates and Trusts

PublishedbyBNRPartnersPtyLtdABN85354278697Level1,327-333PoliceRoad,MulgraveVictoria3170Phone(03)97816800www.bnrpartners.com.auCopyright2018BNRPartnersPtyLtd

Copyright

Copyright of this publica2on vests in BNR Partners Pty Ltd pursuant to the Australian Copyright Act 1968.Except asprovided by the Copyright Act 1968, no part of this publica<on maybe reproduced, stored in a retrieval system ortransmi(edinanyformbyanymeanswithoutthepriorpermissionofthecopyrightowner.Enquiresshouldbemadetothepublisher.

Disclaimer

Everyefforthasbeenmade toensure that thisbook is freeoferrororomission.However, thepublisher, theauthor,endorsees,and theiremployeesoragents, shallnotaccept responsibility for injury, lossordamageoccasionedtoanypersonac*ngorrefrainingfromac#onasaresultofmaterialinthisbookwhetherornotsuchinjury,lossordamageisinany way due to any negligent act or omission, breach of duty or default on the part of the publisher, the author,endorsees,ortheiremployeesoragents.

Thispublica,onisnot intendedtobe,andshouldnotbeusedasasubs,tutefortakingtaxa,onadvice inanyspecificsitua&on.Theinforma,oninthispublica,onmaybesubjecttochangeastaxa,on,superannua,onandrelatedlawsandprac%cesalterfrequentlyandwithoutwarning.

NeitherBNRPartnersPtyLtd,theauthor,norendorsees,ortheiremployeesoragentsareresponsibleforanyerrorsoromissionsoranyac+onstaken.

Thispublica,onhasbeenwri-enjointlybyIanRaspinFCPA,CTA,TEP,DirectorandMarkMorrisLLBB.Comm,CPA,FTIASeniorTaxCounselofourEstatesandTrustsdivision,anddiscussestheobliga'onsofalegalpersonalrepresenta've(LPR)rela%ngtotheincometaxaffairsofadeceasedperson,includingadetailedanalysisoftheirpersonalliabili5esandtheopera$onsoftheATO’snewPrac%calComplianceGuideline(PCG2018/4).

IanRaspinFCPA,CTA,TEP,GAICD

Director–Estates&TrustsBNRPartnersPtyLtd

Email:[email protected]

Ian isaCer*fiedPrac*singAccountantandaDirectorofBNRPartners where he heads the firm’s Estates and TrustsDivision; a division that has specialised in the taxa1on ofDeceased Estates for over 17 years. BNR Partners provideoutsourcedEstatetaxa-onsolu-onsandadvicetobothLegalPrac%ces and listed Trustee companies across Australia, andhas one of the only dedicated teams of accountants in thecountrythatspecialiseinthisnicheando1encomplexareaoftaxa$on.

He is recognisedna-onallyonEstatetaxa-onma4ershavingpublished twobooksonEstateTaxa4on,andbeinga regularpresenteratbothlegalandaccoun+ngconferencesacrossthecountry, including for various Law Socie6es, The Society ofTrust and Estate Prac..oners (STEP), CPA Australia, theCollege of Law and LegalWise seminars. Ian also regularlyprovides in-house training sessions for both legal firms andTrustee companies, and consults with professional bodies,regulatorsandtheprivatesectoronEstatetaxa4onissues.Hehasover25yearsofpublicprac/ceexperienceandisac/velyinvolvedintheprofessionalarena.

Ian was named as a 2017 finalist in the Tax Ins.tute ofAustralia’s SMETaxAdvisor of the yearAwards andwas therecipientofCPAAustralia’s2016HenryFoxAwardforservicetoPublicPrac,ce.

IanisaFellowofCPAAustralia,aCer4fiedTaxAdvisoroftheTaxa#onIns#tuteofAustralia,aRegisteredPrac##oneroftheSociety of Trusts and Estate Prac33oners, a Member of theSocietyofTrustsandEstatePrac00oners,agraduatememberof the Australian Ins,tute of Company Directors and theformer Chairman of CPA Australia’s Na2onal Public Prac2ceAdvisory Commi,ee. He also sits on the College of Law'sEstate Planning Advisory Commi4ee, which advises on thecollege’sMasters of Applied Law programs and is currentlystudying the Entrepreneurs Masters Programme with theEntrepreneurs Associa/on at the Massachuse2s Ins/tute ofTechnologyinBoston,USA.

MarkMorrisLLBB.Comm,CPA,FTIA

SeniorTaxCounsel–Estates&TrustsBNRPartnersPtyLtd

Email:[email protected]

Mark is a CPA Australia Public Prac00oner who is a SeniorTaxCounsel at BNR Partners providing tax, technicaland consul'ng exper'se on a broad range of issuesimpac'ngthefirm’sEstatesandTrustsDivision.

He isalsoaProfessorofPrac+ce lecturing inundergraduateand postgraduate Taxa/on at Latrobe University’s BusinessSchool.

Mark is the co-chair of the ATO’s Tax Profession DigitalImplementa)on Group comprising senior representa)vesfrom theATO, theprofessionalbodies, so-waredevelopersand a variety of prac//oners charged with the on-goingdigital transforma.on of interac.ons between the ATO anditsstrategicintermediaries.

HeisalsoamemberoftheATO’sFutureStateTaxProfessionWorkingGroupandtheTaxPrac//onersStewardshipGroupbeing the peak consulta1ve forum dealing with taxadministra)onma,ersimpac)ngtheprofession.

Markwas formerly the Senior Tax Counsel at CPAAustraliawhere he represented members on a wide range oftechnical, administra.ve and strategic tax issues in variousconsulta)ve forums, lodged submissions with the ATO,TreasuryandotherstakeholdersonallkeytaxdevelopmentsandoriginatedanddisseminatednumerousCPAAustraliataxadvocacy posi+ons on abroad array of issues. Prior to thisrole he held various senior roles in t h e charteredaccoun0ng industry, and has been a frequent speaker andauthorontaxma#ers.

Mark has degrees in Law and Commerce from MelbourneUniversity,andisaregisteredtaxagent,amemberoftheTaxIns$tuteofAustraliaandhasbeenadmi4edtoprac$ceasaSolicitorinVictoria.HeisalsocurrentlyaDeputyChairofCPAAustralia’s Victorian Public Prac1ceCommi5ee andwas therecipientofCPAAustralia’s2013HenryFoxAwardforservicetopublicprac,ce.

... specialising in the taxationof Estates and Trusts

CONTENTS

INTRODUCTION ......................................................................................................................................2

1. INCOME TAX LIABILITIES OF A LEGAL PERSONAL REPRESENTATIVE ...............................................3

1.1 Background .............................................................................................................................3

1.2 LPR’s liability ..........................................................................................................................4

2. LIABILITY IN RESPECT OF PRIOR YEAR ASSESSMENTS ..................................................................5

2.1 Time limits on amendments ...................................................................................................5

2.1.1 2-yeartimelimit ................................................................................................................6

2.1.2 4-yeartimelimit ................................................................................................................6

2.1.3 Notimelimit ......................................................................................................................7

2.2 Deferringadministrationoftheestate ..................................................................................7

3. ADMINISTRATIVE CONCESSION – PCG 2018/4 ..............................................................................8

3.1 Eligibility to rely on PCG 2018/4 ............................................................................................8

3.2 Scopeofadministrativeconcession .......................................................................................9

4. PRACTICAL STRATEGIES TO MITIGATE AN LPR’S EXPOSURE .......................................................13

5. MERITS OF MAKING VOLUNTARY DISCLOSURES.........................................................................14

6. SUMMARY ....................................................................................................................................16

HOW CAN BNR PARTNERS ASSIST ? .....................................................................................................17

RESOURCES .........................................................................................................................................19

INTRODUCTION

Aperson’sappointmentastheLegalPersonalRepresentative(LPR)ofadeceasedestateisoftenseenas a time-honoured rolewhere a family relative or trusted adviser ensures that the deceased’stestamentarywishesaregiveneffect.

However,inrealitythisfiduciaryrolealsocarrieswithitanarrayofresponsibilitiesandriskswhichshouldbeconsideredbeforeanypersonagreestobetheexecutororadministratorofadeceasedestate.

Inparticular,individualsacceptingtheroleoftheLPRofadeceasedestatemustrecognisethattheyareliableforthedeceased’soutstandingtaxliabilitiestotheextentofthedeceased’sassetsthatcomeintotheirhands.

ThisisbecauseoncetheLettersofAdministrationorProbatearegranted,thetaxlawwilltreattheLPRasthatdeceasedpersonundersection260-140(2)ofSchedule1oftheTaxationAdministrationAct(1953)(theTAA(1953)).

Thatis,theLPReffectivelystandsintheshoesofthedeceasedforthepurposesofdischarginganyofthedeceased’soutstandingtaxliabilitiestotheATO.

Accordingly,wherethedeceased’sassetshavebeendistributedandtherearenofundsleftintheestatetodischargesuchliabilities,theLPRwillhavetomeetthedebtsfromtheirownassets.

Giventhissignificantpotentialexposurethispaperseeksto:

• Identify when an LPR may become personally liable for the outstanding tax liabilities of thedeceasedasatthedateofdeath;

• ExplainwhyanLPRshouldonlyconsiderdistributingassetstobeneficiariesaftertheperiodoftheCommissioner’sabilitytoamendassessmentsofthedeceasedhasexpired;

• Highlight the Commissioner’s administrative concession under Practical Compliance GuidelinePCG2018/4whichprovidesanLPRwithgreatercertaintythatsmallerandlesscomplexestatescan be wound up without triggering a liability from the LPR’s assets for the pre-death taxobligationsofthedeceased;

• ListotherpracticalstrategiesanLPRshouldconsidertakinginordertomitigateanypotentialtaxexposure;and

• Explore the merits of an LPR making voluntary disclosure of any unpaid tax liabilities of thedeceasedtotheATOtocrystalliseanyoutstandingincometaxliabilitiesandthereforereducetheLPR’spotentialexposuretopossibletaxliabilities.

Eachofthesekeyconsiderationsisdiscussedfurtherbelow.

While the focus of this paper is on outstanding income tax liabilities an LPRmay inherit from adeceasedperson, itshouldbenotedthattheLPRisalsorequiredtolodgeanyotheroutstandingbusiness activity statements or instalment activity statements and remit any unpaid Goods andServicesTax(GST),Pay-As-You-GoInstalmentsorothertaxesowedtotheCommissionerofTaxationuptothedateofdeathofthedeceased.

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Moreover, theLPRwillhaveapersonal liability in respectofany liabilityarising in respectof theperiodafterdeath(i.e.thedeceasedestate).Whereanestatecontinuestooperateabusinessofthe deceased who had traded in their own right, the LPR will be required to obtain a newAustralianBusinessNumber (ABN)andGST registration in thenameof the estatetoensure thatthe LPRwill be able to apply the rollover provisionsof section138-17of theANewTaxSystem(Goods and Services Tax) Act (1999) in continuing to carry on the business for GST purposes.Similarly,theLPRwillberequiredtomakeanelectionundersection70-105(3)ofthe IncomeTaxAssessmentAct (1997) (the ITAA (1997)) toensure that any trading stockacquiredby the LPR intheirrepresentativecapacityisnotregardedasbeingadisposaloftradingstockatitsmarketvalueoutsidetheordinarycourseofbusiness.

Thecontentsofthispaperarecurrentasat18October2018.

1. INCOMETAXLIABILITIESOFALEGALPERSONALREPRESENTATIVE

1.1 BACKGROUND

AstheLPRstandsintheshoesofthedeceasedtheLPRisrequiredtolodgeafinalincometaxreturnup to the date of death of the deceased, and any other outstanding income tax returns of thedeceased,undersections260-140(3)(a)and(b)oftheTAA(1953).

Inlodgingsuchreturns,theLPRcanmakealltheelectionsandchoicesthatthedeceasedwouldhavebeenabletomakeinrespectofsuchreturnsundersection260-140(2)oftheTAA(1953).

Conversely,iftheLPRdeterminesthatthereisnoobligationorneedtolodgeanincometaxreturntheLPRshouldlodgeaNon-LodgmentAdvicewiththeATO.

Followingthelodgmentofsuchreturns(ornotices)theLPRwillthenbeliableforanyincometaxassessedintheirrepresentativecapacityasthetrusteeofthedeceasedestateincludinganypenaltyorgeneralinterestchargethatmaybepayableundersection260-140(3)(c)oftheTAA(1953).

Essentially, section260-140(3)(c)provides theCommissionerof Taxationwith the same rightsofrecoveryagainsttheLPRinrespectofanyoutstandingtaxliabilitythathewouldhavehadagainstthedeceased.

Accordingly,itwouldbeadvisablethattheLPRensuresthattheATOissueanoticeofassessment(oraretakentohaveissuedanilassessment)beforeanyoftheassetsoftheestatearedistributedtobeneficiariestoensurethatsufficientmoniesareretainedbytheestatetofundthepaymentofanyassessedincometaxliabilities.

Where a decision is made to make an interim distribution part-way through an estate’sadministration,itiscriticalthatpriortomakingsuchadistribution,theLPRensuretheyassessandmakeadequateprovisiontomeetall taxobligations.TaxationRuling IT2622clearlysetsout theCommissioner’spositiononthestagesofestateadministrationincludingtherequirementthattheLPR must provide for all debts relating to the period prior to death and for debts incurred inadministeringtheestatebeforethecompletionoftheestate’sadministration.

TheCommissionercanalsoassesstheLPRifthereisafailuretolodgeafinalincometaxreturnuptothedateofdeath(oranyotherrequired incometaxreturn)undersection260-140(4)oftheTAA(1953). Accordingly, an LPR is not able to avoid their responsibilities as trustee of the deceasedestate by simply not lodging outstanding income tax returns as the ATO may issue a defaultassessmentinsuchcircumstances.

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It is also important to recognise thatwhereProbateor lettersof administration arenot grantedwithin 6 months of the date of death of the deceased, the Commissioner may determine theoutstandingtaxliabilitiesofthedeceasedpursuanttosection260-145oftheTAA(1953).Inthesecircumstances, section 260-140 will not apply as would be the case in Queensland whereassetsautomaticallyvestwiththeLPRwherethedeceasedleavesaWill.

1 .2 LPR’SLIABILITY

Asdiscussed,anLPR’sliabilityasatrusteeofadeceasedestateisapersonalliabilityoftheLPRratherthanbeingaliabilityofthedeceased.However,anLPR’sliabilityupthedateofdeathofthedeceasedisconsideredtobearepresentativeliabilityandwillthereforebelimitedtothevalueoftheassetsthatshouldhavecomeintothehandsoftheLPR.

However,itiswellestablishedthattheamountofsuchataxliabilitycannotexceedthevalueofthedeceased’sassetswhichformthepropertyofthedeceasedestate,providednodistributionoftheassetsoftheestatehavebeendistributedtobeneficiaries.

Thera'onaleforsuchaviewisthattheLPRisonlyappointeda5erthedeceasedhadderivedsuchtaxable income and thereforewill nothavehad an opportunity to provide for such a tax liabilitybeforethat!me(seeBarkworthOlivesManagementLimitedvDFCofT(2010)ATC20-172;StapletonvFCT(1955)93CLR603).

Essentially,anLPRisassessedonanyoutstandingtaxassessedinrespectofthedeceased’sincometaxreturnsastheLPRstandsintheshoesofthedeceasedundersection260-140oftheTAA(1953),andwillthereforebeliabletopaythetaxpayableonthetaxableincomederivedbythatdeceasedindividualinrespectofsuchreturnscalculatedattheapplicablemarginaltaxrate.

Accordingly,anLPRshouldtakegreatcareincollectingalltheassetsofthedeceasedtoensurethatsufficientfundsareretainedtopayanyoutstandingtaxdebtsaswellasanyotherliabilities.

Suchataxliabilitywillrankequallywithallotherliabilitiestotheextentthatthedeceasedpassedawayonorafter1July2000.

Inpractice,someassetsofthedeceasedwillnotcomeintothehandsoftheLPR.Thisisparticularlytrueforsmallerestateswhereamainresidencepassestoasurvivingjointtenant,alifeinsurancepolicy ispayabletoaspecifieddependantorwhensuperannuationbenefitsarepaiddirectlytoadependantofthedeceasedmemberratherthantotheestate.AllotherassetsowneddirectlybythedeceasedwhichpasstotheLPRshouldnonethelessbesetasideastheymayberequiredtofundthepaymentofanyoutstandingtaxliabilityofthedeceased.

Accordingly,thepersonalassetsoftheLPRcanbequarantinedfromanyprospectivetaxliabilityuptothepointthatnodistributionsofestateassetshavebeenmadetobeneficiaries.Whereanestate’sdebts exceed the value of its assets, the estatewill be insolvent and should be administered inaccordancewiththeBankruptcylegislationorprovisionsintherelevantStateorTerritorylegislationdealingwithinsolventestates.

However,section254(1)(e)oftheITAA(1936)alsoprovidesthatthetrusteeispersonallyliableforthetaxpayableonanymoniesthatcometotheLPRintheirrepresentativecapacitywhichhasbeenretainedorshouldhavebeenretainedbytheLPRinrespectofincomederivedbytheestate.

Hence,thereisariskthatanLPRwillnotcomplywithsection254(1)(e)ifthetrusteefailstorecognisethattax‘should’havebeenretainedfromincomereceivedbythedeceasedestateandsubsequentlydistributesassetsoftheestatetobeneficiarieswithoutbeingawareofthisexposure.


GiventhispotentialtaxliabilityitisthereforeappropriatethatanyLPRactconservativelyinensuringthatanyestatepropertyisnotdistributedtobeneficiarieswherethereisanydoubtorconcernthattheremaybepotentialtaxliabilitiesuptothedateofdeathofthedeceased.

TomitigatethisrisktheLPRshouldmakeappropriatequeriestoensurethatallpotentialtaxliabilitieshavebeenidentifiedincludingmakingcontactwiththeATOwhereareturnhasbeenlodgedbutnotassessedtoensurethattherearenotaxliabilitieswhichthetrusteeneedstoaccountfor.

This isespecially importantas theATOwillanticipate that theLPRwouldhavehadnoticeofanyoutstandingclaimthatmaybemadeinrespectofoutstandingtaxliabilitiessincetheLPRstoodintheshoesofthedeceasedinpreparingtheoutstandingreturnsandwouldthereforebeexpectedtohaveareasonableunderstandingofanyprospectivetaxclaimsthatcouldbemadebytheATO.

Accordingly, an LPR must proceed with caution before distributing any assets of the estate tobeneficiariesespeciallyasitwasheldinDeputyCommissionerofTaxationvBrown(1958)100CLR32thattheCommissionercannotrecovertaxfromabeneficiaryoncetheestate’sassetshavebeendistributedbytheLPR.ThiseffectivelymeansthattheonlyavenueavailabletotheATOtocollectsuchoutstandingtaxistorecoverthatamountfromtheLPR.

2. LIABILITYINRESPECTOFPRIORYEARASSESSMENTS

TheLPR’sprospectivepersonalliabilitywillnotonlyextendtotheassessmentofincometaxreturnsthatwereoutstandingatthetimeofthedeceased’sdeathbutalsotoanyamendedassessmentsthatmaybeissuedaftertheirappointmentinrespectofprioryearassessmentsofthedeceased.

Accordingly,theLPRmustbealerttotheriskthatfurthertaxmaybeassessedinrespectofprioryearassessmentsissuedtothedeceasedsubjecttorestrictionsontheamendmentofassessmentssetoutundersection170oftheITAA(1936).

Moreover, if during the administrationof theestate the LPRbecomes awareduring the relevantamendmentperiod that therewerematerial errorsoromissions inprior year tax returnsof thedeceased,itisprudentfortheLPRintheirrepresentativecapacitytorequestamendedassessmentsin the sameway thatanyother taxpayerwouldvoluntarilydisclose suchadjustments inorder toreduceanypenaltiesthatmaybeimposed.

This would particularly apply to prior year adjustments where the ATO has issued an amendedassessment,anditwouldbereasonablefortheLPRtoexpectthattheATOtoalsoamendearlierprioryearassessmentswhereanerrororomissioniseffectivelyrepeatedovermultipleyears.

Such vigilance is desirable as the LPR will wish to ensure that any tax issues are appropriatelydisclosedandquantifiedtotheATOtoensurethattheirownpotentialtaxexposureisminimisedbeforeanypropertyoftheestateisdistributedtobeneficiaries.

2 .1 TIMELIMITSON AMENDMENTS

Broadly,thereare3majortimeperiodsinrespectofwhichanoticeofassessmentcanbeamendedinrespectofadeceasedindividualundersection170oftheITAA(1936)beingeither2or4yearsafterthedayonwhichtheCommissionergavethatindividualanoticeofassessment,oraperiodofindefinitedurationwheretheCommissionerbelievesthattherehasbeenfraudorevasioninrespectofaprioryearassessment.

Eachofthese3scenariosarediscussedbelow:


2 .1.1 2-YEARTIME LIMIT

Item1ofsection170(1)oftheITAA(1936)allowstheCommissionertoamendanassessmentforanindividualwithin2yearsafterthedayonwhichtheCommissionergavenoticeoftheassessmenttotheindividual,andthatpersonwaseithernotcarryingonabusinessorwasasoletraderthatwouldotherwisequalifytobeasmallbusinessentity.

Verybroadly,asmallbusinessentityforthesepurposesisdefinedundersection328-110(1)oftheITAA(1997)tomeananentitywhichcarriedonabusinessintherelevantyearwhoseaggregatedturnoverwasbelowacertainthresholdwhichislessthan$10millionfromtheyearended30June2017(andlessthan$2millionforearlieryears).

This2-yearamendmentperiodwouldalsoapplytoanindividualwhowasapartnerinapartnershiporabeneficiaryofatrustwherethepartnershiportrustwasitselfasmallbusinessentity.

ForthesepurposestheFederalCourtheldinYazbekvFCT(2013)FCA39thata‘beneficiary’meansanypersonforwhosebenefitatrustestateisadministeredwhoisentitledtoenforcethetrustee’sobligation to administer the trust in accordance with the trust deed, rather than merely thosebeneficiarieswhohaveanactualinterestinthetrustincomeorproperty.Accordingly,anobjectofadiscretionarytrustwillbesubjecttothe2-yearamendmentperiodprovidedthetrustitselfsatisfiestherequirementsofbeingasmallbusinessentity.

Given the breadth of individuals covered by Item 1 the amendment period for most deceasedindividualswould predominantly be capped to the above 2-year time limit provided a notice ofassessmenthasissued(orhasbeendeemedtohavebeenissued)tothedeceased.

However,itisalwaysimportanttorecognisethatthis2-yeartimelimitissubjecttootherprovisionsundersection170whichcouldextendtheamendmentperiodtoeither4yearsoranindefiniteperiodincertaincircumstances.

2 .1.2 4-YEARTIME LIMIT

Item4ofsection170(1)oftheITAA(1936)mayextendtheamendmentperiodto4yearsafterthedayonwhichtheCommissionergaveanoticeofassessmenttothedeceasedindividualincertaincircumstances.

Firstly,the4-yearamendmentperiodwillapplyifthedeceasedwascarryingonabusinessandwasnotasmallbusinessentityintheyear(s)inissue.

Thisalsoextendstoapartnerinapartnershipwherethepartnershipwasnotasmallbusinessentityfortherelevanttaxyear.

Forexample,ifthedeceasedindividualhadbeenapartnerinapartnershipcarryingonabusinesswhichhadanannualturnoverof$10millionormorefortheyearended30June2018thatindividualwouldbesubjecttoa4-yearamendmentperiodunderItem4assumingthatpersonhadpassedonduringtheyearended30June2018.

Similarly, the4-yearamendmentperiodwillapplytoabeneficiaryofatrustwhich isnotasmallbusinessentity.

Asdiscussed, following the Federal Court’s decision inYazbek v FCT (2013) FCA39abeneficiaryincludesanobjectofadiscretionarytrustforthepurposesofamendingassessmentsundersection170(1)ofthe ITAA(1936)and isnotmerely limitedtothosebeneficiarieswhoareassessedonashareofthenetincomeofatrust.


Thus,anyobjectofadiscretionarytrustwillbesubjecttoa4-yearamendmentperiodwheretherelevant trust is not a small business entity in the relevant year because it either exceeds theapplicableaggregatedturnoverthresholdorisnotcarryingonabusiness(e.g.investmenttrusts).

Secondly, the extended 4-year amendment period will apply where it is reasonable for theCommissionertoconcludethatapersonenteredintoorcarriedoutascheme(eitheraloneorwithothers)forthesoleordominantpurposeofobtainingataxbenefitunderaschemeassetoutundersection284-150ofSchedule1oftheTAA(1953).

2 .1.3 NOTIME LIMIT

Item5ofsection170oftheITAA(1936)providesthattheCommissionermayamendanassessmentatanytimeiftheCommissionerbelievesthattherehasbeenfraudorevasion.

Theissueastowhethertherehasbeenfraudorevasioninrespectofanearlieryearisdeterminedaccording to the factsandcircumstanceswhichexisted in theyear inwhich thealleged fraudorevasionistakentohaveoccurred.

Unfortunately, the terms fraud and evasion are not specifically defined under the income taxlegislation.Accordingly,itmaybedifficultinpracticetodeterminewhetherfraudorevasionexistsinrespectofaprioryearassessment.

However,asaverybroadobservation,fraudmayberegardedasanactakintoobtainingfinancialadvantage by deception, whilst evasion appears to be an intentional underpayment of tax bydeliberatelyomittingassessableincomeoroverclaimingdeductions.

2.2 DEFERRINGADMINISTRATIONOFTHE ESTATE

Given the breadth of the above amendment periods itmay be prudent for an LPR to defer thedistributionoftheassetsofthedeceasedtobeneficiariesuntiltherelevantamendmentperiodhasexpiredtoensurethatthepaymentofanypotentialtaxliabilitycanbefundedfromthepropertyoftheestate.

PragmaticallythiswouldobviouslybemostfeasiblewheretheLPRbelievesitlikelythatthe2-yeartimelimitationperiodunderItem1ofsection170appliestothedeceased’scircumstances.

However,anLPRalsoneedstobearinmindthattheATOwillregardtheLPRashavingnoticeofapotentialclaimagainst theestate if theyareawarethatthetaxpayerhasanyunderstatedtaxableincomeforaprioryearwhichmaybethesubjectofafutureamendedassessmentissuedbytheATO.

Accordingly, in order to shield themselves from such a contingency an LPR should disclose anymaterialirregularitywhichcomestotheirattentionandrequestanamendedassessmentifitcanbereasonablyconcludedthataprioryearassessmentmayissuewithinthereviewperiodandthetaxliabilityofthedeceasedhasbeenunderstated.

Bycontrast,wheretheLPRhasnoreasontobelievethatthereareanyoutstandingtaxliabilitiesaftermaking reasonable inquiries, and the LPR has advertised for creditors in accordance with theapplicableStateorTerritorylegislation,itismuchlesslikelythatthattheLPRwillbeexposedtoanytax risk following any subsequent distribution of assets to beneficiaries. In support of such anargument reliance canbeplacedon theHighCourtdecision inTaylor vDeputyCommissionerofTaxation(1969)123CLR206.


Theaboveprocesseswillofcoursebecomemoreimportantwheretherearematerialirregularitieswhichhaveresulted in thedeceasedobtaininga taxbenefitunderaschemefor thepurposesofsection285-150oftheTAA(1953)whichwilltriggera4-yearamendmentperiod.

Needless to say, where the LPR is concerned that the deceasedmay have engaged in activitieswhich constitute fraud or evasion the LPR should seek specialist advice or contact the ATO toensurethatsuchconcernsareaddressedandtheirownrisksquarantined.

3. ADMINISTRATIVECONCESSION–PCG2018/4

Following extensive consultation with stakeholders, the ATO has issued Practical ComplianceGuidelinePCG2018/4 toprovide theLPR’sofcertainsmallerand lesscomplexdeceasedestateswithgreatercertaintyastowhentheywillberegardedashavingnoticeofaclaimbytheATOindeterminingwhentodistributeassetstoestatebeneficiaries.

The purpose of this administrative concession is to strike a balance between appropriatelyprotectingtherevenueandallowingtheexecutorsandadministratorsofcertaindeceasedestatestohave greater confidence that they can distribute assets of the estate to beneficiaries withoutcompromisingtheirownposition.

WhilstitneedstoberecognisedthataPracticalComplianceGuidelineisnotabindingpublicrulingitnonethelessprovidesdetailedpracticalguidanceonhowthelawwillgenerallybeadministeredbytheATO.Accordingly,theissueofthePCG2018/4shouldbewelcomedasapositiveinitiativesinceitislikelytoreducecomplexityforthegreatbulkofconventionaldeceasedestatesindeterminingthedeceased’soutstandingtaxliabilitiesuptotheperiodofthedeathofthedeceased.

3.1 ELIGIBILITYTORELYONPCG2018/4

Pursuant to paragraph 6 of PCG 2018/4 the Guideline will apply to an executor who has beengranted Probate of the deceased’s Will, or an administrator who has obtained lettersofadministrationofthedeceasedestate,providedthefollowingcriteriaismet:

(a) inthe4yearsbeforetheirdeaththedeceaseddidnotcarryonabusinessandwasnotassessableonashareofthenetincomeofadiscretionarytrustandwasnotamemberofaself-managedsuperannuationfund(SMSF);

(b) theestateassetsconsistonlyofpubliccompanysharesorotherinterestsinwidelyheldentities,deathbenefitsuperannuation,Australianrealpropertyandcashandpersonalassetssuchascarsandjewellery;and

(c) the totalmarket valueof theestateassetsat thedateofdeathwas less than$5millionandnoneof theestateassetsare intendedtopass toa foreignresident,a tax-exemptentityoracomplyingsuperannuationentity.

ClearlytheLPRofmanysmallandlesscomplicatedestateswillbeabletoreadilysatisfyalltheseconditions and will therefore be able to choose whether or not to rely on the Guideline indistributingthedeceased’sassets.

However,itshouldbenotedthateachoftheabovethreeconditionsmustbefullysatisfiedbeforereliancecanbeplacedontheGuideline.

Accordingly, an LPR of a deceased estatewill not be able to rely on theGuideline in any of thefollowingcircumstances:


• thedeceasedcarriedonabusinessinthe4yearspriortotheirdeath;

• thedeceasedwasassessableonashareofnetincomeofadiscretionarytrustinthe4yearspriortotheirdeath;

• thedeceasedwasamemberofanSMSFinthe4yearspriortotheirdeath;

• thedeceasedheldequityinterestsinunlistedprivatecompaniesorothernon-widelyheldentities;

• thedeceasedownedrealpropertylocatedoutsideAustralia;

• thetotalmarketvalueoftheestateassetsatthedateofdeathwas$5millionormore;and

• anyoftheestate’sassetswereintendedtopasstoaforeignresident,atax-exemptentityoracomplying superannuation entity, (in which case it will be necessary to separately considerwhetherCGTeventK3under section104-215of the ITAA (1997)has anyapplication to suchassettransfers).

TheLPRofsomeestatespotentiallyeligibletoapplytheGuidelinemayconsidergettingavaluationtoconfirmthattheymeetthe$5millionmarketvalueeligibilitythreshold if theyholdsignificanteligibleassetswhosemarketvalueisnotsignificantlybelowthe$5millionvaluationthreshold.

Inaddition,theGuidelinedoesnotapplywhereProbateora LetterofAdministrationhasnotbeenobtainedaswouldbethecaseinQueenslandwhereassetsautomaticallyvestwiththedeceased’sLPRwherethedeceasedleavesaWill.Inthesecircumstances,theLPRwillnotbemadepersonallyliable for the deceased’s outstanding tax liabilities as section 260-140 of the TAA (1953) doesnot apply. Instead the Commissioner of Taxation may collect the deceased’s outstanding taxliabilitiesundersection260-145oftheTAA(1953).

TheGuidelineappliesfromthedateitwasissuedasafinalisedPracticalComplianceGuidelinebeing22August2018.HowevertheATOhasconfirmedthatitwillbereviewedfromtimetotimeundertheATO’sstandardreviewprocesstoensurethecurrencyandrelevanceofitscontents.

3.2 SCOPEOFADMINISTRAT IVE CONCESSION

The Guideline recognises that an LPRmay have an outstanding tax-related liability in respect ofestatessubjecttotheGuidelineiftheLPRdistributedtheestate’sassetswhentherewasanoticeofclaim(orpotentialclaim)bytheATO.

Suchnoticeofclaimmaytaketheformoftaxdebtsoutstandingatthedateofthedeceased’sdeath,returnswhichhavebeenlodgedbutnotassessedatthetimeofthedeceased’sdeathandanytaxliabilitiesarisinginrespectofreturnswhichhavenotbeenlodgeduptothedateofdeath.

However, paragraph 13 of the Guideline provides that the ATOwill not treat an LPR as havingnoticeofanyfurtherpotentialATOclaimrelatingtoreturnstheLPRlodged(oradvisedwerenotnecessary)if:

• theLPRactedreasonablyinlodgingallofthedeceased’soutstandingreturns(oradvisingtheATOthattheywerenotnecessary);and

• theATOhasnotgiventheLPRnoticethatitintendstoexaminethedeceasedperson’staxationaffairs within 6 months from the lodgment (or advice of non-lodgment) of the last of thedeceased’soutstandingreturns.


Accordingly,wheretheLPRhasactedreasonablyinensuringthatthedeceased’s‘final’incometaxreturn up to the date of death has been lodged (as well as any other outstanding income taxreturns), andhasprovidedtheappropriateadvertisednoticetocreditors, theLPRwillbeabletopotentiallydistributetheassetsoftheestatewithin6monthsfromthelodgmentofthelastofanysuchreturnsorprovidednoticethatareturn isnotrequired,unlesstheATOgivestheLPRnoticethatitintendstoexaminethedeceased’staxationaffairsduringthis6monthperiod.

However,anLPRwillnotbeabletorelyonthis6-monthreviewperiodwheretheLPRbecomesaware(orshouldreasonablyhavebecomeaware)ofanymaterialirregularityinaprioryearreturn.Insucha case the ATOwill treat the LPR as having notice of the claim to the extent of the irregularityidentified.However, suchan irregularitywill not result inanoticeof claim if the LPRbrings thatirregularity promptly to the attention the ATO in writing (e.g. the LPR lodges a request for anamended assessment), and the ATO does not issue an amended assessment or indicate that itintends to review the irregularity identified within 6 months of the ATO being notified of thatirregularity.

Example–Straightforwardsmallestate(Paragraphs16-17ofPCG2018/4)

Alfreddiedon1June,2017.BillwasappointedexecutorofAlfred'sWill.HeobtainedProbateofitinJuly2017.Alfred'sestateconsistsofhismainresidence,sharesinpubliclylistedcompaniesandmoney inabankaccount. The collec2ve valueof theestate is less than$1million.Upun+l hisdeath,Alfredhadbeen receivingapension.Alfredhadadvised theATO in2012 thathewasnotrequiredtolodgefurtherreturns.

Basedonalloftheinforma(onavailabletohim,Billdeterminesthatnoreturnisnecessaryfortheperiodfrom1July2016to1June2017.BilllodgedaReturnNotNecessary(RNN)AdvicewiththeATOon31October2017.IftheATOdoesnotno(fyBillthatitintendstoreviewAlfred'staxaffairsby30April2018(6monthsfromthe(meBilllodgedhisRNNadvice),theATOwilltreatBillasnothavingno)ceofanyclaimrela)ngtoAlfred'sestate.Billcandistributetheestatetobeneficiarieswithoutriskofpersonalliability.


Example-Materialtaxirregularityiden/fiedbytheLPR(Paragraphs18-25ofPCG2018/4)

Peterdiedon12December2016.JillwasappointedexecutrixofhisWill.SheobtainedProbateinJanuary2017.

In the course of dischargingher du1esas executrix, Jill confirmedwith theATO that Peterhadlodgedallofhis incometaxreturnsotherthanthereturnsforthe2015-2016yearandthefinalperiodtoPeter’sdateofdeath.

In preparing those returns, Jill discovered thePeter had never returned rental income from apropertythathehadownedinSydneysince2010.Jillincludedrentalincomefromthatpropertyinthereturnsforthe2016incomeyear($20,000)andtheperiodtoPeter’sdateofdeath($10,000).Shelodgedbothreturnson3March2017.JilldidnotseektoamendanyofPeter’searlieryearassessmentsorotherwisebringtheirregulari1estotheATO’sa6en1on.

On4April2017,theATOissuedno/cesofassessmentrela/ngtothereturnsthatJillhadlodged.Jillpaidthoseassessmentsoutoftheestate’sassets.

On1July2017,JillpublishedaNo.ceofIntendedDistribu.on(underStatesuccessionlaws)forclaimstobemadewithin30days.On4August2017,Jilldistributedtheremainingassetsoftheestate.

On20October2017,theATOwrotetoJilladvisingthatPeter’sassessmentsforthe2014and2015yearswerebeingreviewedbecauseofthenon-repor%ngofrentalincome.

Jillhadbecomeawareofamaterial irregularityforthose incomeyearsbecauseshediscoveredthatPeterhadnotincludedrentalincomeinhisreturns.

Jillwill bepersonally liable foranyoutstanding tax liabili.es resul.ng from theamendmentofPeter’s2014and2015incometaxassessments.Jillcannotavoidliabilityonthebasisthatshehadnono$ceofit.

If Jill had brought the prior year irregulari#es to the ATO’s a"en%on when she lodged theoutstandingreturnsJillwouldnotbepersonallyliablebecausetheATOdidnotadviseherwithin6monthsthatitwasintendingtoreviewtheassessments.


Alternatively,wheretheATOhasdecidedtorevieworexaminetheaffairsofthedeceaseduponbeingnotifiedofsuchanirregularity,ithasadvisedintheGuidelinethatitwillpromptlyamendrelevantreturnswhereataxliabilityisidentified.Suchaprocesswillalsohelpexpeditetheadministrationofthedeceasedestateandensurethattaxliabilitiesareidentifiedpriortoanydistributionofestateassetstobeneficiaries.

Finally,iffurtherassetscomeintothehandsofanLPRafterwhatwasthoughttobethecompletionoftheestate’sadministration,theATOwilltreattheLPRashavingnoticeofapotentialclaimbytheATO.Theunderpinning rationaleof thisqualification to theabove6-month reviewperiod is thatsuchassetsmayhavepreviouslygeneratedassessableincomewhichshouldhavebeenincludedinanyoutstandingincometaxreturnsofthedeceased.SuchanomissionisunlikelytooccuriftheLPRmakesreasonableenquiriesofthedeceased’staxaffairsincludingconsultingwiththedeceased’staxagent.

Example-Furtherassetsiden-fied(Paragraphs27-29ofPCG2018/4)

Vincent died on 26 November 2016. Ben was appointed executor of Vincent's Will andobtainedProbate.TothebestofBen'sknowledge,theassetsincludedinVincent'sestateconsistof his main residence, a number of rental proper%es that Vincent acquired using hissuperannua(onlumpsum,andsomemoneyinabankaccount.Basedonalloftheinforma3onavailable to him including tax returns for earlier years, Ben determined that no return wasnecessary for the period from1 July2016 to 26 November 2016 because Vincent's incomewas below the tax-free threshold. Sixmonths a"er advising the ATO that no return wasnecessary, Ben proceeded to distribute theestate'sassets.

In2019,theATOreceivesinforma8onthatVincentownedfurtherassets,theincomefromwhichwasnotdisclosedbyVincentorBen(duetoBennotknowingoftheirexistence).

TheATO issuesamendedassessments for the2017yearand fourpreceding incomeyears. TheATOisnotboundbythisGuidelinetorefrainfromissuinganassessment/amendedassessmenttoreflecttheincomefromthefurtherassets.TheATOwillseektorecovertaxrelatedliabili;esfromBenuptothevalueofthefurtherassetsthatcomeintoBen'shandsasLPR.


4. PRACTICALSTRATEGIESTOMITIGATEANLPR’SEXPOSURE

Historically,anLPRwasabletowritetotheCommissionerofTaxationseekingwhatwasknownasa‘TaxClearanceletter’whichessentiallyenabledthemtodistributethecorpusofanestatewithoutfearofbeingsubjecttounexpectedtaxliabilities.Thatpracticechangedwiththeintroductionofself-assessment.TheATOapproachtocollectionoftaxesfromanLPRwasthenoutlinedinversionsofChapter32oftheATOReceivablesPolicy.WiththewithdrawaloftheReceivablesPolicytherehasbeen significant uncertainty as to when LPR's will be held personally liable for outstanding taxliabilitiesassociatedwiththeiradministrationofanestate.

ItisforthisreasonthatLPR'smustexercisecarewhenmanagingthetaxationaffairsofanyestate.

SomeprudentstepsthatcouldbepracticallyimplementedtomitigateanLPR’sriskofexposureinrespectofoutstandingtaxliabilitiesofadeceasedestateincludethefollowing:

• Ensurethatafullreviewofthedeceased’staxhistoryisundertaken,andthatanyoutstandingincometaxreturnsorothertaxobligationsarebothidentifiedandappropriatelyaddressedpriortodistributingassetsofanestate.Thiswouldincludeensuringthatallrelatedtax,interestandpenaltiesarepaidinfull;

• Setasidepartoftheestate’sassetstofundthepaymentofanyoutstandingtaxliabilitiesifitisnecessary todistributesomeof theestate’sassetsprior to finalising theadministrationof theestate. As best practice, many professional executors not only put aside assets to fund thepayment of outstanding liabilities but also retain additional funds as a buffer to finance thepaymentonanyunanticipatedestateliabilitiesorwherethereisanyuncertaintyregardingthespecific amount of the liabilities. The amount of such a provision can later be distributed tobeneficiariesasafinaldistributionifitisnotrequiredtobecalledupon;

• Fileanon-lodgmentadviceformwiththeATOifitisdeterminedthatthereisnorequirementtolodgeanincometaxreturninrespectofthedeceased’sincometaxaffairsuptothedateofdeath;

• ContacttheATOdirectly if there isanyuncertaintyexistsaroundataxpayer’saffairs.TheATOrecordsandtracksallcorrespondenceandcallstheyreceivefromtaxpayers,soattheveryleastsuchcommunicationswoulddemonstratethattheLPRhasmadeanefforttotryandensurethatthedeceased’staxationaffairswereadequatelyaddressed;

• Comply with all legislative requirements concerning the publication of advertised notices tocreditorsasrequiredunderapplicableStateorTerritorylegislation;

• Obtainanindemnityfromallbeneficiariespriortofinalisingthedistributionoftheestate.ItgoeswithoutsayingthattherearepitfallsinthispracticeespeciallyifthebeneficiarydoesnothaveanyassetswhentheLPRcomestoinvoketheindemnity.Nonethelessthisissensiblehousekeeping;

• ContacttheATOifitisnotpossibletolocatethedeceased’sTaxFileNumber(TFN).TheLPRcanrequestinwritingtobeprovidedwiththedeceased’spersonaldetails,andrequesttheATOtoprovidetheTFNanddetailsofanyoutstandingtaxobligations;and


• Liaisewiththedeceased’staxagenttoobtainasummaryofoutstandingincometaxreturnsandobligations which can be downloaded from the ATO’s Tax Agent Portal. From the 2007 yearonwards,ATOpre-fillingreportsarealsoavailablefromtheTaxAgentPortalwhichcontaindetailsof income thedeceasedhadderived each year. These pre-filling reports are not necessarily acomprehensiveorfullyaccuratesummaryofallofthetaxpayer’saffairs.Accordingly,whilstoftenaveryusefulsourceofinformationitisnotrecommendedthatanLPRpurelyrelyonsuchreportsaloneastheymaynotcontainalloftherequiredtaxdataespeciallyinrelationtoincomeearned.

5. MERITSOFMAKINGVOLUNTARYDISCLOSURESWhilstimplementingtheabovestepswilloftenallowanLPRtoeffectivelyaddressanyoutstandingtaxliabilities,anLPRmayencountersituationswherethereisconsiderableuncertaintyregardingthedeceased’staxaffairsusuallybecauseofmissingdataortaxrecords.

This is especially problematical where the deceased derived offshore foreign income which isassessableinAustraliaorwheretheyownedCGTassetsthatarelocatedoutsideAustralia.

Accordingly, theLPRmaybroadlybelieve that there is somecontingent tax liability in respectofundeclaredincomebutmaynotfeelthereissufficientcertaintyaboutthepreciseamountofsuchanexposure.

In these circumstances there is considerablemerit in the LPR contacting the ATO to voluntarilydisclosetheinformationheldbytheLPRtoseeiftheATOcouldaccessinformationthathaseitherbeenlostorinadvertentlydestroyed.

ThisisbeneficialastheATOwillnotonlybeabletoaccessitsownrecordsbutincreasinglyhasaccesstoinformationprovidedorexchangedwithotherrevenueauthorities.

OncesuchinformationhasbeencollatedtheLPRmaybeabletoworkwiththeiradvisersandtheATO in reconstructing transactions so that they can crystallise the amount of the deceased’soutstanding tax liabilities, and therefore more readily distribute the assets of the estate tobeneficiariestherebyprovidingpeaceofmindtotheLPR.

Apart fromproviding certainty to all parties theATOwould also typically reduce the amount ofpenaltiesthatwouldotherwiseapplywherevoluntarydisclosuresaremade.

TworecentclientexperiencesillustratethebenefitsofmakingvoluntarydisclosurestotheATO.

InthefirstcasethedeceasedwasaVeteransAffairspensionerwhopassedawayinthe2017year.

OnhisdeaththeLPRiden.fiedassetscomprisinga$500,000sharepor)olio,a$50,000overseasbankaccountanda$1.2millioninvestmentfundinSingapore.

However,ittranspiredthatthedeceasedhadnotlodgedanAustralianincometaxreturnuponhisreturntoliveinAustraliainthe1999taxyear.

As the informa.on disclosed on the available pre-filling reports obtained from the tax agentomi$edmuchoftheincomeactuallyderivedbythedeceased,itwasnotpossibletoaccuratelycalculatesuchassessable incomeespeciallywheresomeofthecapitalsuppor4ngsuchforeignincomehadbeenrepatriatedbacktoAustraliaatsomepointduringthe18-yearperiodofnon-compliance.


A"ersignificantefforthadbeenmadetoreconstructtheincomederivedbythedeceased,avoluntary disclosure was made to the ATO given the LPR's inability to locate theremaining informa(on. Following consulta)on with the ATO, who undertook addi$onalinternalsearchesfordata,thepar,eswereabletoreachanagreedposi,on,enablingtheLPRtofinalisetheadministra)onof theestatewithoutbeingexposedtoresidual taxrisks.This collabora6onresultedinannualassessableincomerangingfrom$45,000to$150,000perannum,andthecollec%onofasignificantamountoftax.

ThesecondcaseinvolvedanAustralianpensionerwhopassedawayat89yearsofage.

AsatthedateofdeathofthedeceasedtheestateincludedapropertylocatedintheUnitedKingdomaswellasalocalresidenceandcashfunds.

TheLPRsubsequentlydiscoveredthatthepropertyintheUnitedKingdomhadbeenincomeproducingfor7yearspriortothedeceased’sdeath,andthatsuchrentalincomehadneverbeen declared in any of the deceased’s Australian income tax returns during this period.Moreover,thedeceased’sAustralianaccountanthadnotbeenappraisedoftheexistenceofthe overseas rental property, and therefore did not have any details concerning the netrentalincomederivedduringthisperiod.

A"er the LPRobtained thenecessarynet rental income informa7on from theUK, the LPRcontactedtheATOtovoluntarilydisclosetheomissionofsuchforeignsourcerentalincome,in order toenable the LPR tofinalise the estateadministra)on, including the claimingofforeigntaxcreditsandthemanagementofassociatedinterestandpenal&es.

WhilstobviouslytheLPRwouldseektoindependentlyobtainallrequireddatainordertoensurethatthedeceased’staxliabilitieswereappropriatelyquantifieditshouldbeborneinmindthatallparties including the ATO are keen to ensure that the tax affairs of deceased persons and theadministrationoftheirestatesarefinalisedasaccuratelyandexpeditiouslyaspossible.

Essentially,makingsuchvoluntarydisclosureenablestheLPRtocrystalliseincometaxobligationsindifficultcircumstances.Thisalso reduces theamountof resources that theATOwouldotherwisehaveto independentlydeployto locateand identifyomitted incomealthoughmuchof thisworkwillbeincreasinglyautomatedinthefuture.

Accordingly,makingvoluntarydisclosuretotheATOshouldbeoneofthepossiblestrategiesthatanLPRshouldconsiderinfinalisingtheadministrationofanestate.


6. SUMMARYWhilstthispaperhasunderstandablyfocusedontaxrisksfacedbyLPR'sdistributingtheassetsofanestate it isworthwhile remembering that therearea varietyof strategieswhich canmitigatesuchexposures.

Forthosethatareacutelyriskaversetheremaybemeritindeferringanydistributionuntilaftertherelevant amendment period has expired. However, we recognise that such a strategy is usuallycommerciallyunpalatableespeciallygiventheneedtodistributeestatestobeneficiariesfollowingaperiodofbereavement.

As discussed, many practical steps can be methodically undertaken to correctly ascertain andcalculateanyofthedeceased’soutstandingtaxliabilities.

Inaddition,wherethereisuncertainty,experiencedpractitionersareavailabletohelpLPR'snavigatetheirtaxrisks.

Importantly, where there is a lack of reliable and detailed documentation the ATO can also beapproachedtoworkcollaborativelyinfinalisingthetaxpositionwhichwillprovidereassurancetobothLPR'sandtheiradvisersthatthetaxliabilityofthedeceasedcanbeaccuratelydetermined.

In this context theATO is to be applauded for the issueof PCG2018/4whichhas thepotentialcapacity to significantly streamline the administration of smaller and less complex deceasedestateswhilstensuringthatanyofthedeceased’stax liabilitiesowedasatthedateofdeathareappropriatelyremittedtotheATO.

It isourunderstandingthatPCG2018/4 is intendedbytheATOtobethefirststep inaprocess,where, subject to the successful application of the Guideline, consideration may be given topotentiallyexpandingitsscope.

As a professionwe are keen to build on this initiative and over timewould be keen to supportotheradministrative strategieswherea suitablebalance canbe struckbetweenaccelerating theadministrationofanestatewhilstprotectingtheLPRandthebroadercommunitybyensuringthatanyofthedeceased’soutstandingtaxesareefficientlycollected.


HOWCANBNRPARTNERSASSIST?

BNRPartnersarerecognisedna,onallyasexpertsinthefieldofdeceasedestateandtrusttaxa#onma#ers.We have one of the only dedicated teams of professionallyqualifiedAccountants in thecountry who specialise in this niche and o2en complex area; an areawe have prac7ced in since2000. Wework directlywithWills& Estate/Succession Law Prac99oners and Trustee CompaniesacrossAustraliaprovidingreliablespecialistestateandtrusttaxa(onservicesandadvice, fromtheprepara%onof simple to complex estate income tax returns to le0ers of advice onmore complexestatetaxa'onma+ers.

Bypartneringwithour team, legal prac44oners and LPR'salike are assured that theyaredealingwith a dedicated team of accountants who understand the idiosyncrasies of this field oftaxa.on, and equally as important, who understand the terminology and fundamental legalprinciplesof estateadministra)on.

Ourserviceofferingsinclude:

DateofDeathTaxReturnBNRPartnerscanassistLPR's inpreparingand lodgingthedeceased’sfinal incometaxreturnandanyoutstanding prior years’ tax returns. We assist to ensure that the deceased’s outstandingtaxobliga$onsarecompletedpriortothefinalisa-onoftheestateadministra+on.

DeceasedEstateandTestamentaryTrustTaxReturnsTheBNRPartners tax team specialises inpreparingestate and testamentary trust tax returns.Wehave the experience in preparing tax returns of estates under administra,on from ini,al stage tofinaladministra,on.

Ourteamisalsofamiliarwiththenuancesofpreparingtaxreturnsfortestamentarytrusts,includingtrusts with life tenants, special disability trusts, testamentary discre,onary trusts, minors trusts,superannua(onproceedtrustsandtestamentarycharitabletrusts.

Our services also include the prepara0on of beneficiary tax statements on your firm’s sta.onery.Alterna"vely,we candistribute thebeneficiary statementson yourbehalf. BNRPartnerscanalsomanagetheprocessofobtaininga taxfilenumber for adeceasedestate, a testamentary trustorotheren((es.

ObtainaTaxHistoryReportAs it is the LPR’s responsibility tomanage any outstanding tax obliga)ons, it is essen)al that youobtainanunderstandingofthetaxaffairsofthedeceased.Toassistyouwiththis,BNRPartnerscanprovideasummaryofthedeceased’staxreturnhistoryandanyoutstandingobliga1ons.

Le#erofAdviceOn the pending closure of an estate or testamentary trust, BNR Partners can prepare andprovide LPR's or trustees with a le0er of advice which acts as a tax clearance prior to the finaldistribu/onoftheestateortrust.Thele&eroutlinesoutstandingtaxobliga#ons(ifany),andgivescomfort to theLPR or trustee that the tax issues have been reviewed by a tax professionalspecialising in thisdomain.



PrivateBindingRuling(PBR)With thevarietyofestate taxa/oncomplexi/esanduncertain/es thatexist, it iso&en in thebestinterestoftheestateandtheLPRtoseekaprivatebindingrulingastohowtheCommissionerwouldassessagivenarrangementorsitua.on.Thisisincreasinglyimportantwherethereisuncertaintyinrela%ontotaxtreatmentsoastoprovidetheLPRwithcertaintyonhowtoreportcertainevents,soastomanagetheirexposuretopersonal liabilityfor incometaxpostthedistribu6onofanestate’scorpus.

VoluntaryDisclosuresBNRPartnersregularlymanagevoluntarydisclosuresdirectlywiththeATOonbehalfofLPR'swhereuncertaintyexistsastothetaxhistoryofthedeceased,orwherethereareretrospec4vecomplianceissuesthattheLPRneedstoaddresspriortodistribu2ngtheestate’scorpus,but isunableforanynumberofreasonstofinalise.

CharitableTrustsWe canmanage the registra*onprocess for testamentary charitable trust endorsementswith theappropriateregulatorybodiessuchastheATOandACNC,preparetheirannualfinancialreports,pluscompleteandlodgebusinessac.vitystatementsandfrankingcreditrefundapplica,ons.

WithholdingTaxObliga0onsLPR's and trustees are responsible for the withholding and submission of tax for foreignbeneficiaries,or when a beneficiary fails to quote their fax file number to the trustee. We canassistinboththeregistra(onprocessandthecalcula(onsofthecorrectwithholdingtaxamount.

SpecialisedTaxAdviceBNR Partners also provides wri3en opinions on more complex taxa7on ma3ers where there isuncertainty on the interpreta-on of taxa-on legisla*on in rela(on to deceased estates andtestamentarytrusts,orwhentaxplanningisrecommendedduringtheWillprepara6onprocess.Wecanalsoprepareandlodgeprivatebindingrulingrequestsonyourclient’sbehalf.

PrivateCompany,TrustsandSelf-ManagedSuperannua,onFundsAlthough not estate assets, many people die leaving behind private companies, trusts and self-managedsuperannua,onfundswhichwillneedtobea.endedto. Bothourestatesandtrustsorbusinessservicesteamscanassistwiththeprepara%onoffinancialreportsandincometaxreturns.In addi"on, we are o+en engaged by LPR's to provide an independent review of financialreportspreparedbythedeceased’saccountant.

Seminars/In-houseTraining

Our team has presented at numerous seminars and in-house client training sessions across thecountry.Wewouldbehappy todiscusswithyouhowwemaybeable toassistwithyour trainingneeds.


RESOURCES

Publicationsavailableforpurchaseat bnrpartners.com.au

The Australian TAX PITFALLS of Administering an Estate with

INTERNATIONAL CONNECTIONSWith such a multicultural society and an ever increasing level of

immigration, Australian Estate Practitioners are increasingly being confronted with estates that contain the complexities of

offshore assets or residents.

Oneofthelargestassetsofatypicaldeceasedestateisoftentheprincipalplaceofresidence.WhatisofteninadvertentlyoverlookedisthatthesaleoftheresidencemaytriggeranumberofCapitalGainsTaxissuesfortheestate.

Thebookexploresthisminefieldandgivesclearguidanceonhowtohandlethisissue.

CGT ON A DECEASED’S RESIDENCE … a tax minefield

Thebookprovidestheanswertokeyquestionssuchasthetaxresponsibilitiesofexecutorsandwhenataxreturnisrequired.

Itaddressesanumberoffundamentalestatetaxationissuessuchascapitalgainstax,superannuationproceedsandtheconceptsofpresententitlement.

TAXATION of DECEASED ESTATES for ESTATE PRACTITIONERS

Melbourne | Adelaide | Brisbane | Perth | Sydney(03) 9781 6800 (08) 7221 9750 (07) 2101 5390 (08) 6323 5480 (02) 9131 4270

[email protected]

The Tax obligations of a Legal Personal Representative · recipient of CPA Australia’s 2016 Henry Fox Award for service to Public Prac,ce. Ian is a Fellow of CPA Australia, a Cer4ﬁed

Documents