Testamentary trust changes prompt need for tax rulings, guidance
SMSF professionals with clients dealing with the payment of death benefits and testamentary trusts in the near future may want to apply for tax rulings or seek other advice, with the ATO yet to release guidance on recent legislative amendments, says an industry lawyer.
Last month, the government passed Income Tax Assessment Act 1936 in Treasury Laws Amendment (2019 Measures No. 3) Act 2019, which clarifies that minors should only be taxed at adult marginal tax rates in respect of income a testamentary trust generates from assets of the deceased estate.
The new rules ensure there is a connection between the property from which excepted trust income is derived and the deceased estate that gave rise to the testamentary trust.
Shaun Backhaus from DBA Lawyers said while the changes are still relatively new, there is a strong argument that if the death benefits are paid to the legal personal representative, they then form part of the estate and will have the necessary connection to ensure they form part of the excepted trust income.
“Certainly, I think there’s a strong position that those death benefits do form part of the estate and do have that necessary connection to the estate of the deceased,” Mr Backhaus said in a DBA Lawyers webinar.
“Of course, we don’t actually have any clear guidance yet, as it’s still quite new. For those who have to deal with this soon, I would suggest getting tax rulings or seeking advice.”
Mr Backhaus said the industry needs further confirmation and guidance on the changes, which the ATO will likely provide at some point.
View Legal director Matthew Burgess also agrees that the preferred interpretation is that so long as a death benefit is paid to the legal personal representative of an estate, before then passing to a testamentary trust, this should be sufficient to ensure that any income later derived will be excepted trust income.
However, he previously cautioned that in situations where a death benefit passes directly from a superannuation fund to a legal personal representative in their capacity as the trustee of a testamentary trust, then there is a material risk that the death benefit will be deemed to be “injected” into the testamentary trust in a manner that is caught by the new rules.
“This is because the payment would not strictly pass via the estate of the deceased willmaker,” he said.
Miranda Brownlee
Miranda Brownlee is the deputy editor of SMSF Adviser, which is the leading source of news, strategy and educational content for professionals working in the SMSF sector.
Since joining the team in 2014, Miranda has been responsible for breaking some of the biggest superannuation stories in Australia, and has reported extensively on technical strategy and legislative updates.
Miranda also has broad business and financial services reporting experience, having written for titles including Investor Daily, ifa and Accountants Daily.
