An important component of administering a deceased estate is making sure that all tax obligations are complete before the final distribution of the estate occurs.
If you are an executor or administrator of a deceased estate, you are recognised as the legal personal representative.
For taxation purposes, the legal personal representative can:
- manage the deceased’s tax affairs
- have access to the deceased’s information and assets held by the Australian Taxation Office (ATO)
- appoint a registered tax agent.
Taxation responsibilities as the appointed legal personal representative
Taxation responsibilities as the appointed legal personal representative include:
- reviewing the deceased person’s history of tax compliance and lodging a final tax return if required
- lodging a trust tax return for the deceased estate if required
- providing for any tax liabilities of the estate before its assets are distributed to beneficiaries.
When a final tax return is lodged for the deceased person, it is called a ‘date of death’ tax return.
The date of death tax return covers the period from 1 July of the income year in which the person died, up to the date of death. This is different to a trust tax return for the deceased estate, which is for the period after the person died.
Where tax returns have not been lodged by the deceased for many years prior to death, the legal personal representative has a responsibility to review the deceased’s tax history up to the date of death. If it is identified there are returns not lodged or information is not disclosed, further returns or actions may be required to finalise the deceased person’s tax affairs to the date of death.
To help complete these returns, the legal personal representative will need to obtain the deceased person’s tax information.
Lodging tax returns for the deceased estate
When someone dies, their assets are held by the legal personal representative until the assets can be distributed to the beneficiaries. During this time, the estate may receive income from these assets. For example, the estate may receive rental income from a property, or dividends from shares.
In this case, the legal personal representative may need to lodge tax returns for the estate and pay any tax from the estate. The tax returns lodged for the deceased estate are called 'trust tax returns'.
The review and lodgment of trust tax returns for the estate occurs for the remainder of the income year in which the person died, and then for each year until the estate is finalised.
Managing any business tax obligations
If the deceased person’s tax affairs included carrying on a business, there may be additional obligations such as lodging a final business activity statement (BAS) for the last tax period and any outstanding BAS not lodged. This would include the payment of any outstanding tax. Any additional obligations would depend on the type of business.
Goods and services tax (GST) and capital gains tax (CGT) may apply to the sale of assets that were used in the business.
Finalising tax affairs
Before making a final distribution of the deceased’s assets, the legal personal representative must check that all tax obligations are completed.
The legal personal representative is liable to pay any outstanding tax-related liabilities of a deceased person, up to the value of the deceased estate’s assets. The legal personal representative may have to meet those liabilities personally if they have distributed the estate’s assets before complying with a notice of a claim (tax to be paid) by the Australian Taxation Office.
Tax information for a beneficiary of a deceased estate
There are no inheritance or estate taxes in Australia, but you may have tax obligations for the assets you inherit. Until the deceased person’s estate is finalised, it may continue to earn income. For example, the estate may have income from a rental property or other investments.
If you become entitled to income of the deceased estate, you are required to include it in your tax return. If this happens, the legal personal representative will provide you with the necessary information to complete your tax return.
If you are a beneficiary who lives overseas, the legal personal representative is required to deduct withholding tax and pay your share of any capital gain on assets to the Australian Taxation Office as part of your distribution of the estate.
More information
The Australian Taxation Office provides detailed information on their website about what needs to happen for tax purposes when someone dies. You can also find information for estate trust tax returns.