On 22 August 2018, the ATO issued Practical Compliance Guideline PCG 2018/4 (Guideline) on the personal liability of a legal personal representative (LPR) where assets of a deceased estate are distributed with notice of a claim by the ATO. The Guideline is intended to enable LPRs of smaller and less complex estates to finalise those estates without concern that they may be personally liable for outstanding tax liabilities of the deceased estate (including amended assessments).
The LPR can pay the deceased’s outstanding tax liabilities out of the assets of the deceased estate. However, LPRs may be personally liable to pay those liabilities if they distribute estate assets with notice of an ATO claim.
The Guideline explains when an LPR will and will not be treated by the ATO as having notice of an ATO claim.
An LPR will be treated by the ATO as having notice of:
- any amounts that the deceased owed to the ATO at the date of their death
- any liabilities arising from the assessment of income tax returns that the deceased had lodged but that had not been issued at time of death
- any liabilities arising in respect of outstanding income tax returns that the deceased did not lodge but that the LPR is required by law to lodge and
- any liabilities arising from an ATO review or examination of the affairs of the deceased estate.
Importantly, an LPR will be treated as not having notice of any further ATO claim relating to returns the LPR lodged (or advised the ATO were not necessary) provided that:
- the LPR acted reasonably in lodging all of the deceased’s outstanding returns (or advised the ATO were not necessary) and
- the ATO has not given notice that it intends to examine the deceased’s affairs within six months from the lodgement (or advice of non-lodgment) of the last outstanding returns by the LPR.
An LPR will also be treated as not having notice of an ATO claim if it becomes aware of a material irregularity in an income tax return lodged by the deceased and brings it to the ATO’s attention in writing and the ATO does not, within six months, issue an amended assessment or indicate that it intends to review the matter. The Guideline is limited in its application to smaller and less complex estates. It only applies to executors who have obtained probate and administrators who have obtained letters of administration in circumstances where:
- 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 a self-managed superannuation fund member in the 4 years prior to death
- the estate assets consist only of cash, personal assets, 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 $5m and none of the assets are intended to pass to a foreign resident, tax exempt entity or complying superannuation entity.