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.
Isnt this what was always done. I cant see any changes from previous treatments. Would love to see a table or explanation on previous rules and current rules – the changes are not explained in this article.
The payment of a super death benefit to the LPR does not see it arrive at the trustee’s control. The Executor (in most cases the same as a super LPR) receives the death benefit payment and distributes it in accordance with the terms of the will. I am not seeing why there is so much noise about this issue.