Most people know that income tax is paid to the Australian Taxation Office (ATO) through your salary, wages, investments or business income. However there are tax implications for deceased estates and the assets that are passed to beneficiaries.
When a person dies, their estate is considered as an asset and can pass directly to beneficiaries, directly to a legal representative such as an executor, or from a legal representative to the beneficiary. A beneficiary is considered to have legally acquired the assets of the deceased.
The beneficiary or legal representative will need to finalise the deceased tax obligations. The ATO will need to know if the deceased person had a Tax File Number (TFN), if they lodged a tax return and if they should have lodged a tax return.
The ATO can only disclose information under the Taxation Administration Act 1953 and can only disclose information about a deceased taxpayer to a legal representative who has been granted probate or letters of administration. There may be circumstances where the Commissioner will contact family members who choose not to seek probate or letters of administration on a case by case.
Tax Returns for a Deceased Person
Once the ATO has been notified and if you are the deceased executor or legal representative, you may need to lodge a final individual tax return called a ‘date of death tax return’ and one or more year tax returns on behalf of the deceased person if their tax returns were outstanding. You may also have to lodge a Trust Tax Return for the estate.
A tax return is prepared and assessed in the same manner as when the deceased was alive. General individual tax rates with a full tax-free threshold apply if the deceased was an Australian resident. The Medicare levy and Medicare levy surcharge may also be payable. Your tax agent will be able to help you lodge these tax returns.
Trust Tax Returns
An executor must lodge a tax return on behalf of the deceased from the start of the financial year until the date of their passing. For the remainder of the year, a tax return may need to be lodged for the trust income received from the assets of the deceased. A trust tax return may need to be lodged every financial year until the estate is fully administered.
There are tax implications if you are a beneficiary of a deceased estate if you receive super benefits, receive assets, earn income and if you are under a legal disability or are a non-resident.
Super paid to a beneficiary is called a ‘Super Death Benefit’, which has tax implications depending if you were considered a dependent, if it is paid as a lump sum or income stream, or if it is considered tax-free or taxable.
You might incur Capital Gains Tax (CGT) if you sell as asset. If you receive an asset, no tax is payable at that time.
As a beneficiary, come tax time, you’ll need to provide information on your share of any trust income, the amount of your entitlement that was paid to someone else for your benefit, your assessable income amount and your share of dividends if you received them.
It’s best to speak with a tax agent as there might be other income streams you have received from the deceased estate which will be counted as a part of your taxable income.
There are many tax implications of deceased estates. A tax agent is well-versed in working with deceased estates. They will help you with the information you’ll need or can handle the process for you if it’s too much. They will also work with the legal representatives of the deceased estate to help ease the process through such trying times.
ITP The Income Tax Professionals help over 300,000 Australian with their tax each year. With over 210 branches throughout Australia, there is bound to be a branch near you. There’s no need to come into an office if you can’t make it. ITP offer a remote service, as well as offering after-hours and email appointments.