Tax and the Estate
Nothing is certain but death and taxes – or so the saying goes. In 1979, the Australian federal government abolished death duties. So what is this page all about then? Well, death duties may have long gone but other types of taxes regarding deceased estates are alive and kicking as you will see below.
Is the executor responsible for dealing with the deceased’s tax?
Executors have various tax responsibilities for the deceased person and also, for the deceased’s estate. These duties include lodging tax returns on behalf of the deceased person and their estate and providing information to beneficiaries of the estate.
Does an executor need to notify the Australia Tax Office of the deceased’s death?
Yes, an executor should notify the Australian Tax Office of the deceased’s death by completing the appropriate forms and providing the appropriate supporting documentation.
For an executor to deal with the deceased person’s tax affairs, they will need to prove that they have the authority to do so. It can take up to 28 days for the Australian Tax Office to update the records after they receive the necessary paperwork.
Proof of identity will need to be provided to the Australian Tax Office for the executor or administrator of an estate, including:
- tax file number (TFN), full name, date of birth, and address;
- documents, such as a death certificate and the deceased’s last Will, or
- evidence of the grant of probate or letters of administration.
How can I find out the deceased’s Tax File Number?
The Australian Tax Office will not disclose the deceased’s TFN until you have provided sufficient evidence of your authority. Following the production of this evidence, an executor or administrator of a deceased estate can request the TFN of the deceased person over the phone, or ask us to send it to you.
Does an executor need to lodge tax returns for the deceased or their estate?
Yes, the executor or administrator of an estate must lodge tax returns for:
- The deceased up to the date of their death; and
- The estate for the period of the estate administration. This may mean multiple tax returns are required for the deceased (if the deceased had not lodged returns prior to death) and for the estate (if the estate administration straddles more than one tax year.
Who is liable for any tax liability for the deceased and/or their estate?
Usually, the estate pays tax on income earned up to the completion of the formalities of the estate administration. I.e. until the estate is ready to be distributed to the beneficiaries. Once the estate is distributed to the beneficiaries of the estate, the beneficiaries are liable for the tax earned on their entitlement.
Will Capital Gains Tax be payable on estate assets?
Although death is not a trigger for Capital Gains Tax (CGT), there are some circumstances where CGT may be payable by the estate on assets sold by the estate as if they had been sold by the deceased. This includes assets sold for the purposes of cash distributions to the beneficiaries of an estate.
That said, CGT is an extremely complex area and legal and financial advice should be sought about the best way of dealing with any assets which might be the subject of CGT either during the estate administration or later by the beneficiaries of the estate.
Is the executor or administrator at any risk of personal liability dealing with tax?
The executor (or administrator) has a duty to use the estate proceeds to pay for the funeral of the deceased and then any tax liability. The executor is not open to unlimited personal liability to pay the deceased’s tax. However, if the executor was to distribute the estate and failed to pay for the deceased’s and/or the estate’s tax liabilities first, the executor could be held personally liable to the extent of those tax liabilities.
It is very important that the executor seeks professional advice to ensure that all the tax liabilities of the deceased and their estate are paid prior to the distribution of the estate.