Deceased estate tax returns

Before you start: notify the ATO

If you have not yet told the ATO about the death, do that first. Our guide to notifying the ATO after a death walks through the call, the number to ring, and what you will need to have on hand. This guide picks up from there and covers the tax returns themselves.

If the person used a tax agent, contact the agent directly as well. They will have records of prior lodgements and may be the most efficient person to handle the date of death return on your behalf.

What is the date of death tax return?

The executor must lodge a tax return for the deceased covering the period from 1 July of the relevant financial year to the date of death. This is called the date of death return. It reports all income the person earned in that period: salary, investment income, rental income, government payments, and any other taxable amounts.

The return is due by 31 October of the year following the financial year in which the person died, or a later date if a registered tax agent is used. For example, if the person died in March, the return covers 1 July of the same year to the date in March.

Any tax refund from this return is an asset of the estate. Any tax owed is a liability. Both are dealt with through the estate bank account before distribution to beneficiaries.

When does the estate need to lodge a trust tax return?

After the date of death, the estate is treated as a trust for tax purposes. If the estate earns income between the date of death and the date of final distribution, such as investment returns, rental income from estate property, or interest on the estate bank account, the executor may need to lodge a trust tax return for the estate for each relevant financial year.

Whether a trust tax return is needed depends on whether the estate earns any income and how quickly the estate is wound up. For estates resolved within a single financial year, a trust return may not be required. For estates that take longer, multiple returns may be needed.

An accountant familiar with estate tax can assess whether returns are required for your specific estate and prepare them. Do not assume no return is needed without checking.

How does capital gains tax apply to estate assets?

When estate assets are sold or transferred to a beneficiary, capital gains tax (CGT) rules apply. The general principle is that assets inherited from a deceased estate are taken to have been acquired at the date of death for CGT purposes, with a cost base equal to the market value at that date (or in some cases the original cost base of the deceased).

The main residence exemption may apply to the family home in certain circumstances. If a beneficiary becomes the owner of the home and it was the deceased's main residence, the exemption can continue to apply for up to two years from the date of death while the estate is being administered. After two years, CGT may apply to the proportion of the gain accrued after that point.

For investment properties and other assets, CGT is calculated on the difference between the sale price and the relevant cost base. The rules are detailed and the implications can be significant. Get specific tax advice before selling any property or major estate asset.

How is superannuation taxed when paid as a death benefit?

The tax treatment of superannuation death benefits depends on who receives them. Death benefits paid directly to a dependant (a spouse, de facto partner, child under 18, or person financially dependent on the deceased) are generally tax-free. Death benefits paid to the estate or to a non-dependant adult beneficiary may be subject to tax on the taxable component of the benefit.

The taxable component of a superannuation balance is the amount that has never been taxed (broadly, employer contributions and earnings). The tax-free component (broadly, after-tax personal contributions) is always paid tax-free regardless of who receives the benefit.

The super fund's claims team can provide a breakdown of the components of the benefit before it is paid. A financial adviser or tax agent can help you understand the tax implications for your specific situation.

When should you get professional help with estate taxes?

The ATO's website at ato.gov.au has a dedicated section on deceased estates with guidance on lodgement requirements, CGT rules, and superannuation. It is a useful starting point, but the guidance is general and your specific estate may have factors that require individual advice.

A registered tax agent or accountant with experience in estate matters is recommended for any estate beyond very simple circumstances. They can prepare the date of death return, advise on whether estate trust returns are required, model the CGT implications of selling or transferring different assets, and ensure the executor's obligations to the ATO are fully met.

The executor is personally responsible for ensuring all tax obligations of the deceased and the estate are met. If tax obligations are not addressed and the estate is distributed, the ATO can pursue the executor personally. This is another reason to engage a professional and follow their advice carefully.

What tax records do you need to keep?

Keep copies of all tax returns lodged, assessments issued by the ATO, and correspondence with the ATO throughout the estate administration. These records are needed if the ATO has questions, if there are amendments required, or if beneficiaries later ask about the tax outcomes of the estate.

Retain records of the cost base of all assets at the date of death, even for assets transferred directly to beneficiaries rather than sold. Beneficiaries who later sell an inherited asset will need this information to calculate their own CGT liability.

Keep all estate tax records for at least seven years. The ATO can audit within this period, and the records you keep now protect everyone involved in the administration.