Tax-related responsibilities of a legal personal representative of a deceased estate
An important component of administering a deceased estate is making sure that all tax obligations are complete before the final distribution of the estate occurs.
A grant of probate or letters of administration obtained from the Supreme Court provides the Public Trustee of Queensland the authority to be recognised as the legal personal representative (LPR) for tax purposes to:
- manage the deceased’s tax affairs
- have access to the deceased’s information and assets held by the Australian Taxation Office (ATO), and
- appoint a registered tax agent.
The Public Trustee of Queensland is a registered tax agent with a team that provides professional taxation and specialist taxation services and advice to our customers.
The LPR’s responsibilities
The tax-related responsibilities of the LPR include:
- reviewing the deceased’s history of tax compliance and lodging a final tax return for the deceased person, if required
- lodging a trust tax return for the deceased estate, if required
- providing for any tax liabilities of the estate before its assets are distributed to beneficiaries.
Lodging a final tax return for the deceased person
When a final tax return is lodged for the deceased person, this is called a ‘date of death’ tax return.
This is different to a Trust Tax Return for the deceased estate, which is for the period after the person died. The date of death tax return covers the period from 1 July of the income year in which the person died, up to the date of death.
In the event, where tax returns have not been lodged by the Deceased for many years prior to death, the LPR has a responsibility to review the deceased’s tax history up to the date of death. If it is identified there are returns not lodged or information is not disclosed, further returns or actions may be required to finalise the deceased persons tax affairs to the date of death.
To help complete these returns the LPR will need to obtain the deceased person’s tax information.
Lodging Tax Returns for the deceased estate
When someone dies, their assets are held by the LPR until the assets can be distributed to the beneficiaries. During this time, the estate may receive income from these assets. For example, the estate may receive rental income from a property, or dividends from shares.
In this case, the LPR may need to lodge tax returns for the estate and pay any tax from the estate. The tax returns lodged for the deceased estate are called trust tax returns.
The review and lodgement of trust tax returns for the estate occurs for the remainder of the income year in which the person died, and then for each year until the estate is finalised.
Manage any business tax obligations
If the deceased person’s tax affairs included carrying on a business, and depending on the type of business, there may be additional obligations such as lodging a final business activity statement (BAS) for the last tax period, and any outstanding BAS not lodged, and including the payment of any outstanding tax.
Goods and services tax (GST) and capital gains tax (CGT) may apply to the sale of assets that were used in the business.
Finalising tax affairs
Before making a final distribution of the deceased’s assets, the LPR must check that all tax obligations are completed.
The authorised LPR is liable to pay any outstanding tax-related liabilities of a deceased person, up to the value of the deceased estate’s assets. The authorised LPR may have to meet those liabilities personally if they distribute the estate’s assets with notice of a claim by the ATO.
If you are a beneficiary of a deceased estate
Inheriting money and assets
There are no inheritance or estate taxes in Australia, but you may have tax obligations for the assets you inherit.
Receiving income of a deceased estate
Until the deceased person’s estate is finalised, it may continue to earn income. For example, the estate may have income from a rental property or other investments.
If you become presently entitled to income of the deceased estate, you are required to include it in your tax return.
If this happens, the LPR will provide you with the necessary information to complete your tax return.
If you are a beneficiary who lives overseas
The LPR is required to deduct withholding tax and pay your share of any capital gain on assets to the Australian Taxation Office as part of your distribution of the estate.
The Australian Taxation Office has a wealth of information on their website about what needs to happen for tax purposes when someone dies.