Work out if a beneficiary is presently entitled
Generally, beneficiaries will not be presently entitled to the income of a deceased estate until it has been fully administered.
If any income is distributed to a beneficiary before the estate is fully administered, they are considered to be presently entitled to it.
A beneficiary is presently entitled to income of a deceased estate if they have:
- an indefeasible, absolutely vested interest in the income – in other words, they have a claim or interest in the income that cannot be defeated by another person
- the right to demand immediate payment of the income – this means a beneficiary can be presently entitled even though they may not have actually received the income.
However, you (as trustee of the deceased estate) can make an interim distribution if you are certain that the remainder of the estate is sufficient to cover any outstanding liabilities. If you pay income to a beneficiary before the estate is fully administered, they are considered to be presently entitled to it.
If a beneficiary is presently entitled to any of the estate's income at the end of an income year, and is not under a legal disability or non-resident, then the beneficiary:
- reports their share of the net income in their individual tax return
- is responsible for paying any tax due.
However, if the beneficiary is under a legal disability or a non-resident, you (as trustee) pay the tax on their share of the net income on their behalf.
Work out present entitlement at 30 June each year
A beneficiary's present entitlement to income of the deceased estate is determined on the last day of each income year (30 June).
A beneficiary who is presently entitled on 30 June is assessed on their share of the net income for the whole of the income year.
The income is assessable in the year the present entitlement arose, not the year the amount is received.
For example, if a beneficiary was presently entitled to deceased estate income on 30 June 2024 but did not receive it until September 2024, they are personally assessable on that amount in the income year ended 30 June 2024.
Provide information to beneficiaries
As trustee of the deceased estate, you should provide the following information to beneficiaries so they can prepare their tax returns:
- their share of trust income to which they were presently entitled
- the amount of their entitlement that was paid to someone else for their benefit
- the amount of the trust's net income they are assessable on
- their share of franking credits associated with any dividends in the trust distribution.
Any beneficiaries who are under a legal disability also need to know:
- the amount of tax the estate has paid on their behalf. They are entitled to a tax credit for this, so the same amount is not taxed twice.
Any non-resident beneficiaries also need to know the amount of:
- interest in their distribution, and the withholding tax paid
- unfranked dividends in their distribution, and the withholding tax paid
- franked dividends in their distribution
- tax the estate has paid on their behalf.