On 5 July, the ATO issued a Draft Practical Compliance Guideline - PCG 2017/D2 - with the intent of providing some certainty to those who handle the affairs of the recently deceased in circumstances where the size of the deceased’s assets are small and complexity is low.
Generally, a deceased’s Legal Personal Representative (LPR) is personally liable for all the tax debts of the deceased up to the time of their death to the extent of the deceased’s assets. What this means is that should the LPR distribute all of the assets and a tax debt remains unpaid the LPR will be required to satisfy the tax debt up to the value of the deceased’s assets.
Tax debts can also arise due to amendments or reviews initiated by the Commissioner within the usual two or four year periods. Some LPRs who are not also beneficiaries, essentially professional advisors, can be reticent to distribute all assets before the expiration of the amendment periods which can be up to four years as above.
The new guidelines, if adopted, will apply to:
an executor (an LPR) who has obtained probate of the deceased's will, or an administrator (also an LPR) who has obtained letters of administration of the deceased's estate provided:
in the four years before their death:
- the deceased did not carry on a business
- the deceased was not assessable on a share of the net income of a discretionary trust
the estate assets consist only of:
- public company shares or other interests in widely held entities
- death benefit superannuation
- Australian real property
- cash and personal assets such as cars and jewelry, and
- the total market value of the estate assets at the date of death was less than $5 million.
This draft Guideline does not apply if probate or letters of administration have not been obtained because in these cases an LPR cannot be made personally liable for the deceased's outstanding tax liabilities. However, a different collection mechanism applies under sections 260-145 and 260-150 of Schedule 1 to the Taxation Administration Act 1953 (TAA). [Para. 8]
Very broadly, where the ATO assumes the LPR to be aware or ‘have notice’ of a tax liability the LPR will be liable if not paid from the deceased assets. This refers to, outstanding amounts owing at time of death, outstanding assessments and outstanding lodgements.
This also includes amounts raised as a result of reviews and amendments.
Where the guideline differs from the current practice is in the area of reviews and amendments.
The ATO will not treat an LPR as having notice of any further potential ATO claim relating to returns the LPR lodged (or advised were not necessary) if:the LPR acted reasonably in lodging all of the deceased person's outstanding returns (or advising the ATO that they were not necessary), and the ATO has not given the LPR notice that it intends to examine the deceased person's taxation affairs within 6 months from the lodgment (or advice of non-lodgment) of the last of the outstanding returns.
However, where "the LPR becomes aware or should have reasonably become aware of material irregularities” in a prior year return the ATO will assume the LPR has notice of the amount payable and these guidelines will, in that instance, not apply.
The PCG provides useful examples to further illustrate the thinking behind the guidelines and the practical applications of same.
In summary, the need for proper care and expertise, while required for all tax matters, is especially important for those assuming the role of a deceased’s LPR.
PCG 2017/D12 – accessed 26 July 2017
%20(1).svg "Frame (18) (1)")
.svg "Close (1)")
2 min read
28 min read
