We have been asked many times about the tax consequences of the payment of interest on estate gifts.
Interest paid to a beneficiary will form part of their assessable income. If the beneficiary is a foreign resident, the LPR will be required to deduct 10% withholding tax from the interest payment.
As the interest is not incurred in gaining or producing assessable income of the estate, it cannot be deducted in calculating the net (ie. taxable) income of the estate.
If the delay in estate administration which has resulted in the payment of interest extends beyond 5 years, there is a potential application of the closely held trust TFN withholding rules if a beneficiary has not quoted their TFN to the LPR. These rules are worthy of a post on their own as they require various reports to be lodged and withholding tax paid. Failure to do so can result in penalties.
Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.
This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning. Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.