Tax obligations for a deceased estate

The ATO states on its trust tax returns for deceased estates material that there are no inheritance taxes in Australia. A beneficiary does not ordinarily pay tax simply because they inherit.

Tax still matters in almost every estate because the deceased may have had income before death, the estate may earn income after death, and assets may later be sold. The legal personal representative is responsible for dealing with these obligations on behalf of the deceased and the estate.

The ATO needs to be told of the death so that it can update its records and recognise the person managing the deceased's tax affairs. The ATO's material states that a trust tax return can be lodged once the ATO has been notified of the death and the person managing the tax affairs has been entered on its records. Usually the authorised legal personal representative lodges returns.

Where one is required, the deceased's final individual return, often called the date-of-death return, covers the period from the start of the income year to the date of death. Whether it is required depends on the ATO's criteria, explained below. The ATO's guidance on doing a final tax return explains how it is prepared and lodged.

Some people have not lodged returns for earlier years. An executor may need to identify and lodge those returns too. Records from banks, employers, share registries and the deceased's previous accountant are often needed.

Income earned after death, such as interest, rent or dividends, belongs to the estate, not to the deceased. The ATO explains that if a return needs to be lodged, the estate is treated as a trust for tax purposes, and trust tax returns may need to be lodged each year until the estate is finalised. A tax file number for the estate is generally needed.

The ATO's guidance on who pays tax on deceased estate income explains that the trustee, usually the legal personal representative, is normally responsible for tax on the estate's net income before the estate is fully administered, because beneficiaries generally become presently entitled to income only once it is fully administered. Different rules apply where a beneficiary is a non-resident or under a legal disability.

Whether a return is required in a particular year depends on the ATO's current criteria, which refer to matters such as the estate's net income and the beneficiaries' circumstances. These should be checked for each year rather than assumed.

A deceased estate is different from a testamentary trust created by a will that continues after the estate is administered. Where there is both, separate returns and tax file numbers may be required.

Capital gains tax (CGT) questions often arise in estates. The ATO's guidance on how CGT applies to inherited assets explains the general position, which can be summarised at a high level as follows:

• a capital gain or loss is generally disregarded when an asset owned by the deceased passes to the legal personal representative or to a beneficiary;
• there are exceptions, for example where an asset passes to a tax-advantaged entity or a foreign resident;
• when the estate or a beneficiary later sells or disposes of the asset, a CGT event may happen unless an exemption applies;
• the beneficiary's cost base depends on factors such as when the deceased acquired the asset.

The deceased's home

Special rules can apply to a dwelling that was the deceased's main residence. The ATO's guidance on inherited property and CGT explains that an inherited dwelling may be exempt in some circumstances, including, as at 27 September 2026, where it is disposed of within two years of death and other conditions are met, with the period extendable in some cases. Whether the exemption applies depends on how the property was used before and after death, the residency of the deceased and beneficiaries, and other conditions.

Beneficiaries do not ordinarily pay tax merely on receiving an inheritance. They may, however, need to include in their own returns their share of estate income to which they are presently entitled, and they may face CGT when they later sell an inherited asset. Beneficiaries should keep the information the executor provides about cost base and acquisition dates.

Super death benefits are taxed under separate rules that depend on whether the recipient is a death benefits dependant for tax purposes and on the components of the benefit. A benefit paid to the estate is taxed within the estate in the same way as if paid directly to the beneficiary. See superannuation death benefits.

Before final distribution, many executors confirm with the ATO that all returns have been lodged and liabilities paid. The ATO's guidance on confirming tax obligations are complete explains how this can be done. Holding back a sufficient amount until the tax position is confirmed is a common protective step. See when an estate can be distributed.

A date-of-death return is not automatically required in every estate. As at 27 September 2026, the ATO's guidance on doing a final tax return (last updated 4 June 2026) states that a return may be needed, and that it must be lodged if any of the ATO's listed criteria apply. Those criteria include, for example, that tax was withheld from the deceased's income, that taxable income exceeded the relevant threshold, or that the deceased had a history of lodging returns in previous years or has outstanding returns.

If a date-of-death return is not required, the ATO explains that a non-lodgment advice should be sent instead, marked "DECEASED" with the date of death. The thresholds and detailed criteria change and should be read on the ATO page for the relevant year rather than taken from a summary.

Earlier outstanding returns are a separate question. Whether or not a date-of-death return is needed, any returns for prior years that the deceased should have lodged still need to be identified and dealt with.

Before the ATO will deal with a representative, it generally needs to be notified of the death and to have the representative's authority recorded. Evidence of authority is usually the grant of probate or letters of administration, although the ATO's material explains the documents it accepts and the position where no grant is sought. A registered tax agent will also need to be authorised to act for the deceased and the estate.

Where estate trust returns are required, the estate needs its own tax file number, separate from the deceased's. The ATO's trust tax returns for the deceased estate guidance explains when returns are needed and how the estate is treated. A continuing testamentary trust created by the will may need its own registration and returns once the estate itself is administered.

An executor should consider tax before distributing. Retaining enough to meet expected liabilities, including tax on estate income and any capital gains from sales during administration, protects both the executor and the beneficiaries. The amount is a judgement based on advice, not a fixed percentage.

Good records also help beneficiaries. Under the inherited-asset rules described in the ATO's CGT guidance, a beneficiary's cost base can depend on the deceased's acquisition date and cost, or on market value at death. Keeping purchase records, valuations at the date of death and details of how a dwelling was used can matter years later.

• Residence: a beneficiary or trustee who is a foreign resident for tax purposes may change how CGT and estate income are treated.
• Foreign income or assets: the deceased's or estate's overseas income may need to be reported, and foreign tax may also apply.
• Testamentary trusts and minors: special rules may apply to income of minors from a deceased estate.
• Super paid to the estate: the tax treatment depends on who ultimately benefits, as explained in the superannuation guide.

• The ATO has been notified of the death and the representative's authority recorded.
• Earlier outstanding returns have been identified and lodged.
• A date-of-death return has been lodged, or a non-lodgment advice sent if no return was required.
• Estate trust returns have been lodged for each year they are required, using the estate's own tax file number.
• CGT consequences of any sales or transfers have been considered and records given to beneficiaries.
• Any amounts owed have been paid and refunds received.
• The tax position has been confirmed before final distribution, using the ATO's confirming tax obligations are complete guidance.

• Assuming no inheritance tax means no tax obligations at all.
• Missing outstanding returns from earlier years.
• Treating estate income as the deceased's income, or the reverse.
• Selling or transferring property without considering CGT and the main residence rules.
• Distributing the whole estate before tax is settled.
• Assuming a date-of-death return is always, or never, required instead of checking the ATO's criteria.
• Relying on thresholds or rates without checking the current year's rules.

We can help an executor understand the tax stages, coordinate with the deceased's accountant or a tax adviser, and plan the administration so that tax is provided for before distribution. Tax returns and specific tax advice should be prepared by a registered tax agent or adviser.

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