Return(s) of the Dead

My plans for this weekend have been cancelled, so instead I’m getting my first vaccine. Yay?

Enough about COVID, let’s talk about something much more fun – excusing estates from filing income tax returns.

(Look, I work in tax, I have a different definition of fun, ok?)

Section 43B of the Tax Administration Act allows non-active trusts to be excused from filing tax returns if they meet certain requirements. Historically the IRD’s view was that deceased estates aren’t “trusts” and therefore weren’t entitled to claim the s 43B exemption.

They’ve now changed their view, and they’ve issued Operational Statement OS 21/03 setting out when deceased estates can be excused from filing tax returns.

If you’re not familiar with the process, executors and administrators of a deceased estate must set up a new IRD number for the estate and make returns for income derived in the years after death. They are also responsible for filing returns for income derived up to the date of death.

The IRD’s position is that once executors and administrators have completed their duties to the point that they stand ready to “distribute” the property of the estate (i.e., they have met all their obligations regarding expenses, debts and legacies of the deceased), a trust will arise. The technical term for this situation is “assent”.

It’s common at this point for a will to distribute assets (often the deceased’s home) to trustees to hold for beneficiaries. These can be the executors or administrators so that the only change is the capacity in which the assets are held (from executor/administrator to trustee).

The IRD now consider that once an estate reaches the position of assent, it can be considered a trust for the purposes of s 43B, and therefore the estate does not need to file returns if it meets the other requirements. They also do not need to obtain a new IRD number for the trust and can continue to use the estate’s IRD number.