It is an unfortunate part of life that at some point, someone close to you will pass away. It is therefore important to be aware of the tax consequences that come along with this. When an individual passes away, a legal personal representative (LPR) (AKA administrator or executor) will be appointed to manage the tax affairs of the deceased.

The LPR should notify the ATO of their appointment and of the death of the deceased, using the Notification of a Deceased Person form online. The LPR will be required to go to a post office to provide official documents for viewing, including the death certificate and either the letter of administration or evidence of probate. Probate is the process of proving and registering the last will of a deceased person, this will need to be done prior to managing their tax affairs. Once this has been done the LPR will have full authority to lodge any outstanding or future tax returns on behalf of the deceased.

The first step to finalising the tax obligations of the deceased is to ensure that all previous year’s tax returns have been lodged, and if returns were not necessary, then ‘Non-Lodgement Advice forms have been lodged.

Secondly, if in the year that the deceased passed away, they had any of the following, then a date of death tax return will be required:

  • Tax withheld from income.
  • Income above the tax-free threshold.
  • Franking credits that they wish to claim.

A date of death tax return covers the period from the beginning of the financial year in which the deceased passed, being the 1st of July, up until the date of death. The deceased’s marginal rate of tax will apply, including the entitlement to the tax-free threshold.

Finally, a trust tax return covers the period from the date of death up until the end of the financial year, being 30th June. A trust tax return will be required if any of the following have occurred in the name of the deceased:

  • Earns any amount of income above the tax-free threshold.
  • Received dividends and wants to claim franking credits.
  • Has carried on a business.

To lodge a trust tax return on behalf of the deceased, the LPR will be required to apply for a new TFN for the deceased estate.

A trust tax return will need to be lodged every year until the deceased estate is fully wound up and not earning any income. The tax rate that will apply will be the deceased’s marginal tax rate for the first three years, but if further returns are required beyond this, then higher, progressive tax rates will apply to encourage the LPR to make a genuine effort to wind up the deceased tax affairs.

Related blogs:

What happens if I die without a will?

Author: Molly Ingham