Why Is Death Tax Important And How To File One?

Posted 2 years ago in BUSINESS.

Learn about Death tax, its importance and how to file one in Australia.

Why Is Death Tax Important And How To File One?

In Australia, whenever someone dies, an administrator of their estate or an executor of their will inherits the responsibility to manage the taxes of the deceased estate as long as the estate is under their control. In reality, the term ‘death tax’ is no longer used in the Australian taxation field. Still, the Will Executor or the administrator has to pay the taxes and lodge a tax return on behalf of the deceased person. 

In addition to paying regular taxes, will executors may also have to pay outstanding taxes from previous financial years. This blog discusses how to lodge a deceased estate tax return successfully.

Inform the ATO (Australian Taxation Office)

If the deceased person has a TFN and has lodged a tax return even once, you must inform the ATO (Australian Taxation Office). An ATO Notification of a Deceased Person form is available online, which you can fill out and complete this procedure quite easily. Alternatively, if you choose to do it offline, you can download a paper form, fill it out, and send it to the ATO through the post, along with certified copies of important documents.

After that, you have to obtain an interview appointment at any retail branch of Australia Post within 30 days of information from the ATO. You must bring a certified or original copy of the Grant of Probate, the will or Letters of Administration in the interview.


Gather Information About Assets And Liabilities

Next, you have to start compiling an inventory of all the assets and liabilities of the deceased estate. This information will help understand the financial value of the estate. The standard components may include trusts, bank accounts, real estate, investments, personal loans, mortgages, and other debts.

Determine Tax On Inheritance

If a property is inherited from a deceased estate, you will not need to worry about inheritance tax. However, you may still have to bear some taxes. You may require taxation advice from a professional for different types of taxes and tax implications applicable to a deceased estate. 

Transfer of deceased estate assets

You can transfer the deceased estate assets and funds in the following three ways:

  • From estate to will executor or administrator
  • From estate to beneficiary
  • From will executor or administrator to beneficiary

Income tax

Individuals who receive income in any form have to pay specific income tax. Income tax is commonly paid through a business or partnership income, salary, interest, rental income, and dividends or investment returns. 

Suppose the income of the deceased estate is generated in the sole name of the deceased person during the estate administration process, through rent from investment properties, bank account interest, or investment dividends. In that case, income tax must be included in the return.

Company tax

If the business owned by the deceased person is gifted or sold to a beneficiary, the new owner has to pay the company taxes.

Capital gains tax

CGT or capital gains taxes are paid on any profit gained from the sale of particular assets like shares or real estate. If you inherit an asset, CGT will not usually apply. However, if you or anyone sells the asset, then CGT will apply.

  • Whenever a capital gain is made, it is added to the assessable income of the concerned person. Thus, it can increase the taxable amount they need to pay when they lodge their personal annual income tax return. 
  • However, this CGT condition will not apply if the beneficiary sells the inherited property within two years of the death or if a beneficiary living abroad receives this property as a gift. 
  • Apart from real estate and shares, CGT applies to stocks, cryptocurrency, personal assets like furniture valued over $10000, art collections, boats, jewellery valued over $500, household items, and electrical goods. 

Tax on superannuation

Usually, superannuation does not form a part of the deceased estate. However, if a non-dependent person receives the superannuation benefit, a death benefit must be paid. A non-dependent person may be someone other than the deceased person’s spouse or former spouse, a child who has not turned 18, or a person who had become dependent on the deceased person before their death.

If such an incident occurs or the deceased person had held an SMSF Perth, it is recommended to consult a tax professional.


Prepare the return

Once the ATO receives the information on the deceased person, the authority will formally confirm you. After receiving the confirmation, you may start managing the deceased person’s tax dealings.

  • The tax return of a deceased person is commonly known as a date of death tax return. In addition to preparing it, you may also need to prepare outstanding tax returns from previous financial years. 
  • If you do not find the necessary documents, you may ask the ATO to check when the deceased person had lodged their last tax return, and you will only need to provide the Tax File Number.
  • Note that you have to complete the tax return using the paper forms of the ATO. Also, remember that you must write the words ‘DECEASED ESTATE’ on the top of the page while completing the tax returns.

Lodge A Final Estate Tax Return

If a sale of valuable assets results in significant capital gains and the profits generated by the deceased estate are over $18220, which is the tax-free threshold of Australia, a final estate tax return will usually be required. It happens when appreciating assets like real estate, managed fund investments, shares, or bank account interests are sold. 

You have to obtain a tax assessment for a final estate tax return. It will help you understand how much tax you have to pay for the deceased estate. Once the amount is known, you may decide to pay it either immediately or wait till the assets are distributed among the beneficiaries.


Final thoughts

Like other tax returns, deceased estate tax returns must also be lodged within usual deadlines (no later than 31 October). If you find it challenging, you may take help from a professional tax agent in Perth.