When someone passes away there are tax obligations that will need to be attended to by the administrator or executor of the estate. Some of the important tax matters include:

  1. Notification to the ATO of the Death
  2. Attending to any outstanding tax returns during the Deceased’s life
  3. Applying for an estate tax file number (if required)
  4. Attending to any estate tax returns (if required).

Why does the estate need to lodge tax returns?

For tax purposes, an estate is a trust.[1] Every year until the estate is fully administered a return will be required (estate return) and must be paid by the trustee of the estate.[2] For an estate return, the net income is assessable income (the trustee treated as a resident taxpayer) minus allowable deductions.[3]

 The liability for the assessment of the net income is determinant on the beneficiary’s present entitlement to the income of the trust by 30 June. Whether a beneficiary is presently entitled is subject to the stage of administration, the Will (if there is one), trust law and if the trustee has made any payments to the beneficiary.[4]

A strict application of the law could result in adverse consequences to the beneficiary’s inheritance. The Commissioner permits, on suitable evidence, an apportionment in the income year assessed to the trustee or the beneficiary depending on when the income was received.[5]

It is important to seek legal and tax advice when administering a Deceased estate and prior to distributing the estate. We can provide guidance on how to approach the tax matters and get you in touch with tax agents familiar with Deceased estates.

[1] ‘Doing trust tax returns for a deceased estate’, Australian Taxation Office (Web Page, 29 April 2021)

<https://www.ato.gov.au/Individuals/Deceased-estates/Doing-trust-tax-returns-for-a-deceased-estate/>.

[2]  Income Tax Assessment Act 1936 (Cth) s 9.1 (‘ITAA 1936’).

[3]  Ibid s 95(1).

[4]  Federal Commissioner of Taxation v Whiting (1943) 68 CLR 199, 216-217.

[5] Ibid [21]-[22].