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Tax treatment of deceased estates

October 2013

In the 2011/2012 Federal Budget, the previous Federal Government announced that legislation would be introduced to confirm the ATO's current administrative practice of treating a testamentary trust in much the same way as an executor of a deceased estate for GST purposes. 

Minor amendments were also announced in the 2012/2013 Federal Budget in relation to the application of the CGT rules to deceased estates.

How the ATO will treat testamentary trust changes
No legislation was actually introduced regarding the proposed changes, however the ATO has released a new factsheet setting out its administrative treatment, including:
  • The ATO will accept returns lodged until the proposed changes are passed by parliament
  • Prior year assessments will not be reviewed until the outcome of the proposed amendments are known.
The treatment of a trustee of a testamentary trust in the same way as an executor of a deceased estate means that if the trustee transfers an asset held by the deceased to a beneficiary, any capital gain or loss that would otherwise arise should be disregarded.

What is a testamentary trust?
A testamentary trust is established as part of creating a will but doesn't come into effect until after the death of the person who has made the will.

It describes the way assets will be managed by a person - ie. the trustee - for the benefit of other people (e.g. children, family members or others considered as 'beneficiaries'). Under the testamentary trust, the trustee has the discretion to distribute capital, income and other assets between the beneficiaries nominated in the Will.

A testamentary trust can be used to protect and preserve the inheritance until the beneficiary comes of age or at a specified age determined during the estate planning process. Testamentary trusts can also protect assets in the event of a marital or commercial breakdown.

Contact us
If you require more information about the how the ATO treats testamentary trusts or to discuss estate planning, please contact us on 02 9957 4033.

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Last updated October 2013. This article is provided for information purposes only and should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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Disclaimer

This article is provided for information purposes only and correct at the time of publication. It should not be used in place of advice from your accountant. Please contact us on 02 9957 4033 to discuss your specific circumstances.

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