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Extinguishment of tax attributes (eg losses) on death under Australia’s income tax is anomalous and inequitable

Published on 01 Sep 13 by "AUSTRALIAN TAX FORUM" JOURNAL ARTICLE

Taxpayers’ tax attributes (the focus in this paper is on tax losses, both revenue and CGT losses) are extinguished on death, and they are not available to the deceased’s [trust] estate or beneficiaries. This extinguishment rule stands in stark contrast to the rules that apply upon the death of a stakeholder in a company or a fixed trust with tax losses. Here, through the fiction of “continuity of life”, there is no extinguishment rule. Further, the extinguishment rule is also anomalous in the context of the extremely generous treatment given to the “event of death” throughout many other areas of the income tax. The death of a taxpayer is overwhelmingly treated as an occasion where relief is given. No doubt, the extremely generous treatment is, in part, designed to avoid the appearance of a “death duty”. Yet, the extinguishment rule has not attracted the same concessional treatment.

This article compares the tax treatment of death where tax losses are owned directly with the situation where tax losses are “owned” through entities. The article also compares the extinguishment rule with the concessional treatment of death involved in a number of the most important areas of the income tax. The conclusion of the article is that the current extinguishment rule is inequitable and anomalous, and its continuance is difficult to justify.

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Dale BOCCABELLA

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