Blog

Death and taxes…

14 Oct 2015

Topics

  • Wills & Estates

The following information is provided as guidance to executors about their responsibilities in regards to the tax affairs of a deceased person and the steps that they need to take. We strongly recommend executors seek advice from an accountant or tax agent. The information in this document is being provided by way of general advice only and is not specific to the circumstances of your particular matter.

The deceased

The first step in finalising the deceased’s tax affairs is to determine whether or not the deceased was required to lodge tax returns before their death. If so, it is the executor’s responsibility to ensure that all outstanding tax returns, if any, are lodged and that any tax liabilities are paid from the estate.

Date of death tax return

If the deceased was required to lodge tax returns before their death, and had been doing so, the next step is for the executor to ensure that a final tax return (also called a ‘Date of death return’) is lodged. This tax return covers the period from the previous 1 July to the date of death. The final tax return should include all assessable income received and tax-deductible expenses incurred by the deceased up to the date of death.

In the event that a final tax return is not required to be lodged, the executor should lodge a ‘Non-lodgement advice form’, which effectively advises the ATO that the deceased has passed away and notifies the ATO of the date of death.

Things to remember

  • Gifts made under a will are not tax deductible unless the gift is made under the Cultural Bequest Program; and
  • Funeral expenses are not tax deductible and are not eligible for the medical expenses tax offset.

The estate

Even after the deceased’s death, the estate may still be receiving income from various sources (e.g. bank interest or dividends from shares) and/or incurring capital gains tax liability (e.g. capital gain from the sale of estate assets such as shares or investment properties). Just as if the person was still alive, tax returns, called ‘Trust tax returns’, need to be lodged. To be able to lodge these trust tax returns, the executor will need to apply for a tax file number for the estate by lodging a ‘Tax file number application for the deceased estate’ form with the ATO.

A trust tax return will need to be completed each financial year until the estate is fully administered and no longer deriving income.

Capital Gains Tax (CGT)

When a person dies an asset can either pass directly to a beneficiary or be sold by the executor and cash given to the beneficiary.

If a beneficiary disposes of an asset, they inherit the cost base of the deceased for a post-CGT asset (asset acquired after 19 September 1985). If a beneficiary disposes of a pre-CGT asset, the cost base becomes the market value of the asset at the date of death.

Conclusion

Our expert team of Estate Planning lawyers can guide clients through this complex legal area.