If you act as executor or administrator of a deceased estate you may be surprised to know that, in certain circumstances, you may be personally liable for the deceased’s taxation liabilities.
The ATO has now issued Practical Compliance Guideline PCG 2018/4 giving executors or administrators (called a legal personal representatives (LPRs)) of smaller and less complex estates clarity about their personal liability where assets of the estate are distributed with notice of a claim or potential claim by the ATO.
When does PCG 2018/4 apply?
The guideline only applies to LPRs who have obtained either probate or letters of administration in situations whereby:
- the deceased did not carry on a business, was not assessable on a share of the net income of a discretionary trust and was not an SMSF member in the 4 years prior to death;
- the estate assets consist only of cash, personal assets such as cars and jewellery, public company shares or other interests in widely held entities, death benefit superannuation and Australian real property; and
- the total market value of the estate assets at the date of death was under $5 million and none of the estate assets are intended to pass to a foreign resident, a tax-exempt entity or a complying superannuation entity.
When is an LPR deemed to have notice?
The ATO will treat an LPR as having notice of:
- any amounts the deceased owed to the ATO at the date of death (including charges accruing in respect of those amounts following death, such as interest);
- any liabilities arising from the assessment of income tax returns the deceased had lodged that had not been issued at the time of death;
- any liabilities arising in respect of outstanding income tax returns the LPR is required by law to lodge; and
- any liabilities arising from an ATO review or examination if the affairs of the deceased estate.
Significantly, the LPR will not be treated as having notice of any further ATO claim relating to returns the LPR has lodged (or has advised were not necessary), provided:
- the LPR acted reasonably in lodging all of the deceased’s outstanding returns (or informing the ATO that they did not need to be lodged); and
- the ATO has not notified the LPR that it intends to examine the deceased’s tax affairs within 6 months of lodgement (or advice of non-lodgement) of the last outstanding return by the LPR.
Furthermore, if the LPR becomes aware (or ought to have become aware) of any material inconsistencies in a tax return lodged by the deceased, the LPR has a responsibility to raise such inconsistency with the ATO, so the ATO can decide whether an amended assessment is issued.
What should you do?
If you act as executor or administrator of a deceased estate it is important you understand your responsibility to ensure the deceased’s taxation affairs are properly finalised. Where the estate is not an estate to which this guideline applies, it is arguably even more important to get advice from your lawyer or accountant.
Practical Compliance Guideline PCG 2018/4 applies from its date of issue which was 22 August 2018. The ATO plans to reconsider the guideline from time to time to ensure it aligns with Australian taxation requirements as they may evolve.