Tax Returns and Deceased Estates

Tax Returns and Deceased Estates

Tax Obligations and Final Tax Returns

Dealing with the tax affairs of a loved one who has passed away is rarely straightforward and getting it wrong can delay the finalisation of their estate.

An executor or legal personal representative (LPR) is often left managing a range of financial responsibilities, including tax. Understanding what the ATO requires, and when, makes a difficult time easier to navigate.

There are two separate returns to consider, a date of death tax return for the deceased's own income up to the day they died, and potentially a trust tax return for income the estate earns afterwards. Australia has no inheritance tax, but the LPR must confirm all tax obligations are settled before distributing assets, or they can be held personally liable.

Step-by-Step: What an Executor Needs to Do

  1. Notify the ATO of the death by phone, this pauses correspondence to the deceased and records you as the person managing the estate.
  2. Confirm who's managing the estate. Usually the named executor, or next of kin if there's no will. Full administration typically takes 6 to 12 months.
  3. Get a grant of probate or letters of administration if required, this makes you the ATO's recognised LPR with full authority over the deceased's tax affairs.
  4. Formally notify the ATO you're the LPR, a separate step from the initial call.
  5. Sort out any business tax obligations, including a final BAS if the deceased was a sole trader or in a partnership.
  6. Lodge the date of death tax return (and any outstanding prior-year returns).
  7. Lodge trust tax returns for the estate, if it earned income after death.
  8. Confirm everything is finalised before distributing assets, this carries personal liability risk if skipped.

The "Date of Death" Tax Return

This final individual return covers the deceased's income from 1 July of the income year they died, up to the date of death. For example, someone who died on 4 March would have a return covering the previous 1 July to 4 March.

  • Must be lodged on a paper tax return, not myTax or myGov, unless a registered tax agent lodges it online for you.
  • Required if, in that income year: tax was withheld from the deceased's income, their taxable income was above the tax-free threshold, or they had lodged (or had outstanding) prior-year returns.
  • If none apply, lodge a non-lodgment advice instead, writing "DECEASED" and the date of death as the reason.
  • If the person died intestate and no one administers the estate within 6 months, the ATO may raise its own assessment and pursue any tax owing.

The Deceased Estate Trust Tax Return

Income the estate earns after death, such as rent, interest or dividends, is treated separately and may require a trust tax return. The first income year runs from the day after death to the next 30 June.

Check each income year whether a return is required, it's not a one-off. It may not be mandatory if income is below the tax-free threshold and there are no presently entitled or non-resident beneficiaries, though lodging voluntarily can help claim franking credits. If continuing the deceased's business, apply for a new ABN and trust TFN immediately, you can't use the deceased's original ABN.

Confirming Tax Obligations Before Distribution

Before distributing assets, confirm the date of death return (and any prior returns) is lodged, other lodgments like BAS are submitted, the estate's final trust return is lodged, any credits owed are claimed, and business registrations (ABN, GST, PAYG withholding) are cancelled.

This isn't just procedural. The LPR is liable for the deceased's outstanding tax debts up to the value of the estate and can become personally liable if they distribute assets while aware of an ATO claim.

Common Pitfalls

  • Confusing the date of death return with the estate's trust return
  • Missing income the estate earned after death
  • Not applying for a new ABN/TFN when continuing a business
  • Distributing assets before tax obligations are confirmed finalised
  • Overlooking CGT on assets transferred to beneficiaries or sold by the estate

Get Expert Support Managing a Deceased Estate

Administering a deceased estate's tax affairs is a significant responsibility that shouldn't be tackled without the right guidance.

The team at Cashflow Financial helps executors and legal personal representatives across Sutherland, Wollongong and Sydney manage deceased estate tax obligations with confidence, ensuring everything is finalised correctly before assets are distributed. Contact Cashflow Financial today for guidance on your responsibilities as an executor or for more insights on tax and estate planning.