PCG 2018/4 (update) – LPR’s personal liability if estate assets distributed with notice of ATO claim

On 10 April 2024, the Commissioner updated his Practical Compliance Guideline PCG 2018/4, to make it apply to ‘less complex estates’; expand the size of such Estate assets, and amend his guidance on what tax liabilities, he will treat an Executor/Legal Personnel Representative (LPR) as having notice. I will get to these updates, shortly, after surveying the relevant law, at play, and the problem the Commissioner is trying to address.

Succession, is regulated by State and Territory statutes and case law, which oblige an Executor/LPR to discharge the deceased’s liabilities, out of the deceased’s estate, which has vested in them. Additionally, they are entitled to be reimbursed, out of the Estate, for certain reasonable costs in administering the estate. An Executor/LPR will not be personally liable (that is, out of their own assets) unless the ExecutorLPR distributes the assets, of the estate, without first paying liabilities, of which he/she have ‘notice’. The relevant state and territory acts facilitate prompt administration of deceased Estates,. by allowing the Executor/LPR to advertise their administration, call for notice of debts, and then distribute as if they, then, had notice of all debts. To get this protection, an Executor/LPR must wait a particular period (usually 6 months) before distributing surplus assets to the beneficiaries.

Tax debts, however, do not sit easily, in this framework. This is partly because tax liabilities can arise unexpectedly, and can do so, over a relatively long period, because the Commissioner amend assessments within four years of the initial assessment (or without impediment, if there has been no initial assessment, to amend. To complicate this further, Federal tax law (s260-140 of the Taxation Administration Act 1953) obliges an Executor/LPR to “in his/her representative capacity, discharge the [tax] liability for which the deceased person would be liable, if he or she were still alive.” To the extent that this Federal law, is inconsistent with the State succession statutes, it has precedence (under our Constitution). So, for instance, the Executor/LPR cannot be protected, from federal tax liabilities, by simply advertising and waiting State based statutory period (before distributing). Also, there could be tax liabilities, from the administration of the deceased estate, which have to be met, from Estate assets, before surplus Estate assets are distributed. The Executor/LPR is the taxpayer, here, and the normal Federal law, dealing with payment of tax liabilities, apply to the Executor/LPR directly (without the special s260-140 provisions relating to the deceased’s tax liabilities). The problems are the same here – complex law, long review period, and the constitutional precedence of Federal Law.

It seems that the Commissioner has, by issuing PCG 2018/4, implemented a semi-concessional regime, for what he describes as ‘less complex estates’ (by virtue of various requirements, including one that the aggregate value of its assets is less than $10m. Where a deceased estate, cannot satisfy a tax debt, because assets have already been distributed, he will not treat Executor/LPR as liable (out of their own pocket), if they did not ‘have notice‘ of the tax liability (which is, essentially, a general law principle, that operates in State based succession law).

The bulk of the PCG is given over to the principles to apply, in establishing whether the Executor/LPR had notice. As part of this, the Commissioner expects the Executor/LPR to have ‘acted reasonably’. The Commissioner then fleshes this out (at great length) with many examples.

‘Less complex estates’, to which this PCG applies, include those 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 member of a Self Managed Superannuation Fund (in the 4 years before death);
• the estate assets consist only of cash, cash investments, other personal assets, public company shares or other interests in widely held entities, superannuation death benefits and Australian real property;
• the total market value of the estate assets at the date of death is under $10 million; and
• no asset passes to a foreign resident, a complying superannuation entity, or a tax exempt entity (though testamentary gifts, to tax exempt charities are allowed, if the donation would have been tax deductible, if it had been made, before death, such that s118-60 of the ITAA 1997 applies, to disregard a capital gain or loss).

A draft version these amendments was issued as PCG 2018/4DC1 on 27.9.23. A summary of these changes, is set out below.

Amendment History

[FJM 12.4.2024; LTN 65, 10/4/24]