What to do about tax when you're handling a loved one's estate
They say nothing in life is certain except death and taxes—and when death occurs, tax matters inevitably follow.
If you’re the person responsible for managing a deceased person’s affairs, there are several important steps you’ll need to take to deal with their tax obligations.
First Steps
If someone close to you has died and you’re managing their affairs, your first step is to notify the ATO of their death. To do this, you’ll need to:
- Establish your identity with the ATO as the deceased’s representative; and
- Formally notify the ATO of the death by providing either the death certificate, a grant of probate, or letters of administration.
Becoming the Authorised Legal Representative
To fully manage the tax affairs of a deceased person, you must be recognised by the ATO as their legal personal representative (LPR). This typically means you are:
- The executor named in the deceased’s will; or
- The court-appointed administrator, usually the next of kin, if no will exists.
If there is a valid will, the Supreme Court in your state will grant probate, which legally confirms your authority to act as the executor. Where there is no will, you’ll need to apply for letters of administration, which appoints you as the administrator of the estate.
Tax Responsibilities of the LPR
Once you are recognised as the LPR, your tax responsibilities include:
- Lodging a date of death tax return for the deceased; and
- Ensuring any outstanding tax liabilities are paid before distributing the estate to beneficiaries.
Was the Deceased Running a Business?
If the deceased was operating a business—whether as a sole trader or in partnership—you’ll need to:
- Seek legal or tax advice specific to the business;
- Lodge a final Business Activity Statement (BAS) for the quarter in which they passed away, along with any outstanding BASs; and
- Pay any taxes owed, which may include GST or capital gains tax (CGT) on the sale of business assets.
Lodging Final Returns
You’ll need to lodge the deceased’s final income tax return (the “date of death” return), as well as any overdue tax returns from previous years. You may need help from the ATO to access the deceased’s tax records and complete this step.
All tax obligations must be finalised before distributing any assets to the beneficiaries.
Is the Estate Earning Income?
If the estate continues to receive income—such as rent from property or dividends from shares—it is treated as a trust for tax purposes. This means you must:
- Lodge a trust tax return for the estate; and
- Ensure any tax refunds or franking credits are claimed appropriately.
Wrapping Up
Before distributing the estate’s assets, make sure that:
- All tax debts have been paid;
- All credits due to the estate have been received; and
- All tax registrations (such as an ABN or GST registration) have been cancelled.
Once all of this is completed, you may proceed with distributing the estate according to the will or letters of administration.
Keep in mind: finalising an estate can take anywhere from six to 12 months, or longer depending on the complexity involved.