You have finalised the tax affairs of a deceased estate when:
- the date of death tax return for the deceased person (and any outstanding tax returns for previous years) has been lodged and finalised
- any other returns or information required to be provided by the deceased person have been submitted and finalised – for example, business activity statements
- the deceased estate is no longer earning any taxable income, and the deceased estate's last trust tax return, if one is required, has been lodged and finalised
- all tax liabilities have been paid
- you have reported any issues you have identified with the deceased's tax affairs and these have been finalised
- any credit amounts due to the deceased person or the deceased estate have been claimed
- any business tax registrations held by the deceased estate have been cancelled – for example, their Australian business number, GST and pay as you go (PAYG) withholding registrations.
The tax liabilities of the deceased person and those of the deceased estate trust are accounted for separately. However, they are all liabilities of the one general deceased estate. A refund may be offset against any liability to work out the net tax position of the estate.
A liability may relate to either an assessment or an amended assessment that is made before or after the death of the deceased person.
You should ensure that all tax obligations have been met, or fully provided for, before making a final distribution of the deceased estate's net assets to the beneficiaries (or to a testamentary trust, if there is one).
You may be personally liable if you don't pay the tax owing before you finalise the estate up to the value of the estate's assets you held or should have held. For more information, see Practical Compliance Guideline PCG 2018/4 Income tax – liability of a legal personal representative of a deceased person.
What to do if the estate is insolvent
If the deceased person was bankrupt at the time of the death, the bankruptcy proceedings will generally continue after death.
If there are not enough assets or funds in the estate to cover the liabilities owed by the deceased estate, you are generally not required to personally deal with any shortfall.
Each State and Territory has succession laws that set out how an insolvent estate is to be administered, including how assets are to be distributed to creditors. Alternatively, an LPR or creditor of the estate (including us) may apply to have a bankruptcy trustee appointed.
If the estate is insolvent, you may need to seek professional guidance. The Australian Financial Security AuthorityExternal Link has information on the administration of insolvent deceased estates.
You must advise us of the financial position of the estate, so that we can assess the action to be taken regarding the estate’s tax liabilities.
We have issued PCG 2018/4 that explains when an authorised LPR who is managing a smaller, less complex estate can finalise the estate without concern they will incur a personal liability for the deceased person's tax.
If certain conditions are met, and there is no fraud or evasion, the estate can be finalised without waiting for the expiry of the period we have for amending income tax assessments.
The conditions are as follows:
- The LPR has obtained probate or letters of administration, so is authorised to access information about and represent the deceased in their tax affairs.
- In the 4 years before the person's death, the deceased
- did not carry on a business
- were not assessable on a share of the net income of a discretionary trust
- were not a member of a self-managed super fund.
- The estate assets consist only of
- public company shares or other interests in widely-held entities
- death benefit super
- Australian real property
- cash and personal assets such as cars and jewellery.
- The total market value of the estate assets at the date of death was less than $5 million, and none of the estate assets are intended to pass to a foreign resident, tax exempt entity or complying super entity.
- The authorised LPR has met all tax obligations of the deceased person.
- The authorised LPR does not have notice from us of
- a claim against the estate
- our intention to review or audit the deceased person's affairs.
The guideline applies only to the tax affairs of the deceased person. It does not apply to the tax obligations of the deceased estate trust – that is, to liabilities for the period after the death of the deceased person.
Example: straightforward small estate
Alfred died on 1 June 2022.
The value of his estate is less than $1 million, made up of:
- his main residence
- shares in publicly listed companies
- money in a bank account.
Alfred had been receiving a pension for a number of years prior to his death, and fully franked dividends from his shares. He had advised the ATO in 2017 that he was not required to lodge further income tax returns.
Yiannis is the executor of Alfred's will. He obtains a grant of probate in July 2022.
From the information available to him, Yiannis determines that he does not need to lodge a date of death tax return for Alfred. Yiannis lodges a non-lodgment advice on 31 October 2022.
As of 30 April 2023 (6 months after Yiannis lodged the non-lodgment advice), the ATO has not notified Yiannis that it intends to review Alfred's tax affairs. Therefore, the ATO considers that Yiannis does not have a notice of any claim relating to Alfred's estate.
Yiannis can distribute the estate to beneficiaries without risk of personal liability for the deceased person's tax.End of example