Executors have the responsibility to administer all aspects of Deceased Estate Tax Returns – including the responsibility to prepare and lodge the appropriate paperwork (where required) on behalf of the Deceased and his/her Estate.
Below are three tax returns that are needed to be considered by Executors.
On Behalf of the Deceased until the Date of Death
The Executor may have to lodge a final personal tax return, also known as the ‘date of death return,’ on behalf of the Deceased. Whether or not a date of death return is required is determined on a variety of factors including (but not limited to) whether the Deceased earned a taxable income up until their death or if they lodged tax returns in the years prior. If a tax return is not required, the Executor must still lodge a Non-lodgement Advice Form to the ATO.
On Behalf of the Estate Each 30 June during the Estate Administration
Between the date of death and the final distribution, the Executor will be required to obtain a Tax File Number for the Estate and lodge ongoing trust tax returns every 30 June for any income earned in the Deceased Estate. The applicable tax rates are calculated several factors including whether the beneficiaries have any legal disability or whether the beneficiaries are ‘presently entitled’ to the income of the Estate.
Final Distribution of the Deceased Estate
Once a grant of probate/letters of administration has been obtained and any debts and liabilities have been paid, the Executor may then distribute the remaining assets to the beneficiaries and lodge a final tax return on behalf of the Estate. In smaller, uncomplicated estates, the administration and distribution may be done within one financial year so only two returns (date of death return and one trust tax return) may be required.
Executors should also keep in mind that certain transfers or sales of any assets in the Estate may have Capital Gains Tax (CGT) implications. Generally, there is a CGT exemption to transfers of assets to a beneficiary, however CGT may apply where an Executor sells an asset within the estate with the intention to distribute the funds to the beneficiary.
The implications of incorrectly lodging a tax return may cost the estate considerable amounts more in extra tax or costly legal fees to rectify any issues. In all estate taxation matters, it is strongly recommended that Executors seek advice from a professional such as an experienced estate lawyer or chartered accountant.