deceased estate tax & testamentary trust FAQS (AUS)

The legal personal representative of a deceased person is responsible for lodging any outstanding tax returns and paying any liabilities owing to the ATO. This would include reviewing the deceased’s personal tax obligations prior to finalising the estate.
For smaller and less complex estates, refer to PCG 2018/4 published on the ATO legal database regarding the liability of a legal personal representative of a deceased person.

Yes. Executors are responsible for lodging the deceased’s final individual tax return. Tax returns may also be required for the deceased estate where it continues to earn income during the administration period.

For tax purposes, a deceased estate is generally treated as a trust from the date of death. The executor acts in a trustee capacity while administering the estate.

Executors are responsible for lodging required tax returns, reporting estate income and ensuring all tax obligations are settled before assets are distributed to beneficiaries.

A deceased estate may access concessional tax treatment for up to three income years while the estate remains under administration.

During the concessional period, the estate is generally taxed at individual tax rates (including access to the 50% CGT discount) . After this period, higher progressive trust tax rates will apply. It is important to note, these the concessional tax rates are at the Commissioners discretion, and accordingly, should he be of the opinion that the estate administration is intentionally being delayed taking advantage of the concessional tax rates, that the ATO may apply the penal rate of 47% to all estate income, including the loss of the CGT discount.

The tax treatment depends on the stages of estate administration, and whether a beneficiary is presently entitled to the income. Where a beneficiary is entitled, they are generally assessed on that income. Otherwise, the executor is assessed on behalf of the estate.

A beneficiary is presently entitled when they have a clear legal right to demand payment of income. This typically occurs once the executor has settled the estate’s liabilities and determined distributions. It can also occur as a result of an interim distribution from the estate.

There is generally no immediate capital gains tax on death. Assets may pass to beneficiaries under rollover provisions, meaning capital gains tax is deferred until a later disposal, although specific exceptions can apply.

Capital gains tax may arise where the estate disposes of an asset. Transfers to beneficiaries are generally not taxed at that point, with any capital gain deferred until the asset is subsequently sold. There can be specific exclusions to this, such as where in specie transfer is made to non-resident beneficiaries, or to charities that do not hold DGR status.

Losses incurred prior to death generally do not carry forward into the estate or to beneficiaries. Losses realised by the estate may be available for use within the estate, but cannot be transferred to beneficiaries.

A testamentary trust allows for flexible income distribution to beneficiaries. In certain circumstances, minor beneficiaries may be taxed at adult rates where the income qualifies under specific tax rules. Where the trustee accumulates income or capital gains, it is taxed against the trustee, but generally at progressive marginal tax rates (excluding the tax free threshold).