Issues in tax administration for estates
The Tax Institute writes to the Australian Taxation Office (ATO) to highlight some key areas of concern that arise during the administration of an estate and the ongoing needs of taxpayers and their advisers that we consider would benefit from ATO guidance and support. The concerns raised in our submission are based on feedback from our members. These include legal professionals, tax agents and other practitioners who manage these issues for their clients and deal with the ATO through the administration of an estate. Members of the Society of Trust and Estate Practitioners Australia Limited (STEP) have assisted in preparing this submission and we understand that STEP Australia has provided its endorsement to this submission. A number of STEP’s members are also members of The Tax Institute. Of note, we consider that there are several aspects of the ATO’s administrative approach that would benefit from amendment, clarification, or further consultation. These include, but are not limited to:
- amending the forms used in the notification process and providing an online portal to ensure timeliness and the adequate protection of taxpayer information;
- clarifying the ATO’s approach to voluntary disclosures for estate administrators who are lodging the deceased’s overdue tax returns; and
- allowing legal practitioners from the same firm to certify copies of documents needed by the ATO in relation to the estate of the deceased. This will ensure that tax and legal practitioners and legal personal representatives (LPRs) are supported to efficiently manage deceased estates. Our members have also noted the need for updated and new guidance from the ATO regarding several key issues. This includes, but is not limited to, guidance on the ATO’s views regarding:
- present entitlement for deceased estates;
- whether certain amounts are taxable under the withholding tax (WHT) regime;
- the application of section 99A of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936);
- the correct tax outcome in a ‘double death’ scenario – that is, where a beneficiary of an estate passes away prior to the administration of the first estate and their estate subsequently receives assets of the first estate.
- the appropriate tax treatment when a beneficiary pays for an asset (or part of an asset) from a deceased’s estate;
- the treatment of capital gains and losses made by foreign LPRs; and
- family trust elections (FTEs) involving testamentary trusts.
Further details are contained in Appendix A.
Appendix B contains real-life examples provided by our members of problems in this field experienced in practice. The issues mainly relate to estates dealing with a deceased’s lack of historic tax compliance that gives rise to significant difficulties and exposures for LPRs and their tax and legal advisers.