Under Australian tax law there is no death duties however, income and some capital transactions may incur tax as a consequence of a person’s death
Taxation of Income received before death
Final Tax Return for the deceased person
The executor is required to lodge all outstanding tax returns up to the date of death of the person.
Final Tax Return not required for deceased person
If the executor has determined that a final tax return is not required, they, or the deceased’s tax adviser should complete a ‘Non-lodgment advice form’ and send it into the Tax Office. On the form, where it asks for the reason for not lodging a tax return, ‘DECEASED’ should be printed followed by the deceased person’s date of death.
Tax rates for final tax return of deceased person
The general personal tax rates, with the full tax-free threshold, will apply to the final tax return of the deceased person, if an Australian resident. The Medicare levy and Medicare levy surcharge may also be payable.
Taxation during administration of estate
After the date of death, the deceased estate may receive income from various sources (see Assessable income below). A trust tax return will need to be lodged for the deceased estate if there is tax payable on the income or capital gains or if tax has been withheld from that income. A trust tax return will need to be lodged each income year until the deceased estate is fully administered (that is, all of its assets and income are distributed to the beneficiaries) and no longer deriving income. The net income of the deceased estate is taxed either in the hands of:
• the beneficiaries who are presently entitled, or
• the executor.
Deceased estate and capital gains tax
What happens to assets when the owner dies?
If you are a deceased person’s legal personal representative or a beneficiary of a deceased estate, special capital gains tax (CGT) rules apply to the transfer of any CGT assets.
When a person dies, the assets that make up their estate can:
- pass directly to a beneficiary (or beneficiaries), or
- pass directly to their legal personal representative (for example, their executor) who may dispose of the assets or pass them to the beneficiary, or beneficiaries.
A beneficiary is a person entitled to assets of a deceased estate. They can be named as a beneficiary in a will or they can be entitled to the assets as a result of the laws of intestacy (when the person does not make a will).
A legal personal representative can be either:
- the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will), or
- an administrator appointed to wind up the estate if the person does not leave a will
Inheriting a dwelling Introduction
If you inherit a deceased person’s dwelling, you may be exempt or partially exempt when a capital gains tax (CGT) event happens to it (for example, you sell it). The same exemptions apply if a CGT event happens to a deceased estate of which you are the trustee.
The degree to which CGT applies depends on:
- when the deceased person acquired the property
- when they died
- whether the property has been used for income-producing purposes.
These rules do not apply to land or a structure you sell separately from the dwelling – they are subject to CGT. See Subdividing and amalgamating land for more information.
We can help with
- Final Tax Return for the Deceased Person
- Work with the estate administrator to –
- Apply for Trust Estate TFN, Prepare Trust Estate Tax Return while the estate is being administered and wound up
- Provide Tax Advice on the Transfer of Property & Superannuation to the Estate or directly to beneficiaries in the most tax effective manner.