The Australian Taxation Office (ATO) has released for public comment draft Practical Compliance Guideline (PCG) 2017/D12, which gives guidance to the legal personal representative (LPR) of a deceased person as to circumstances where the LPR may be personally liable for the deceased’s tax liability.
Despite the liability of an LPR to pay outstanding tax-related liabilities of a deceased person being limited to the value of the deceased’s assets that come into their hands, an LPR may be personally liable if they distribute the estate assets with notice of a claim or a potential claim by the ATO.
PCG 2017/D12 confirms that it is a question of fact whether the LPR had notice of a claim from the ATO. The draft guideline asserts that circumstances where an LPR may be treated as having such notice include situations where the LPR:
- receives notice of amounts owning at time of death;
- receives notice of liabilities from outstanding assessments;
- receives notice of liabilities arising in respect of outstanding returns;
- receives notice of liabilities arising from amendments or other charges;
- receives notice of intention to examine the deceased person’s taxation affairs within 6 months from the lodgement (or advice of non-lodgement) of the deceased’s outstanding returns; or
- becomes aware of a material irregularity in a prior year return in the course of administering the deceased estate.
The draft guideline clarifies that:
14. 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.
Once an income tax return is lodged, the Commissioner generally has two or four years, depending on the circumstances, from the day on which he gives notice of an assessment to amend. The Commissioner may apply the guideline to any distribution of assets made by an LPR during the review period.
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