Is an Estate Required to Pay Tax?

Every individual who receives an income exceeding the tax-free threshold has a statutory obligation to lodge a tax return every financial year. This obligation also applies in the event you pass away and your estate receives an income greater than the tax-free threshold in any given financial year.

Who lodges your tax returns when you pass away?

When you pass away, the executor or administrator of your estate is obliged to lodge tax returns on behalf of your estate in the following scenarios:

1. Any prior year tax returns that are outstanding by you individually;
2. A ‘date of death’ tax return which covers income received from 1 July (the financial year of your death) to the date of your death; and
3. A ‘deceased estate’ trust tax return for the remainder of the financial year of your death and any subsequent financial years until the estate is completely administered.

How is a deceased estate treated for tax purposes?

A deceased estate is treated as a trust for tax purposes by the Australian Taxation Office where the executor or administrator of your estate is taken to be the trustee. Until your estate is completely administered, the executor or administrator of your estate is obliged to lodge a tax return every financial year.

Are there any exemptions for lodging a tax return for a deceased estate?

There are a number of exemptions that may arise for lodging a tax return for a deceased estate. Such exemptions include:

1. If the executor or administrator of your estate completes the administration of your estate in the same financial year as the date of your death, your executor or administrator is not obliged to lodge a ‘trust’ tax return when both of the following apply:
   • When there are no beneficiaries presently entitled to any income in your estate; and
   • When the taxable income of your estate (as an individual) is below the tax-free threshold.

2. If the executor or administrator of your estate does not complete the administration of your estate in the same financial year as the date of your death, your executor or administrator is not obliged to lodge a ‘trust’ tax return when all of the following apply:
   • When you die less than three years before the end of the financial year (the financial year of your death); and
   • When the net income in your estate (as an individual) is equal to or less than the tax-free threshold for the financial year; and
   • When there are no beneficiaries presently entitled to a share of the income of your estate at the end of the financial year; and
   • When all beneficiaries in your estate are Australian residents during the financial year. (Note: a trust tax return must be lodged every financial year until your estate is administered in the event you have any non-resident beneficiaries).

If your estate does not satisfy the above exemptions, a ‘trust’ tax return must be lodged every financial year until your estate is completely administered.

For further information contact our team of Wills & Estates lawyers on (02) 9964 0499.