Perfect Magazine
  • October 26, 2021
  • williambeel
  • 0

For most people, dealing with deceased estate management is a challenging job. But having some background knowledge will make your job easier. One thing to keep in mind is that the law that controls the income and assets of a deceased person largely depends on which territory or state they had lived in at the time of their death. 

This blog primarily focuses on the deceased estate tax return obligations, where you may also need to consider territory or state legislation.

What does a deceased estate include?

When a person dies, their assets and property are collectively known as a deceased estate. These assets may include money in bank accounts, real estate, personal possessions, and shares. Several income types can also be a part of the deceased estate. In contrast, some assets may not be included if the deceased person had arranged distribution of those assets.

  • Assets of a dead person are held in a deceased estate in trust from their death until the distribution of those assets and property among the beneficiaries nominated in the will. An executor or a Supreme Court-appointed administrator administers the transfer process.
  • You should note that the deceased estate may not always include life insurance and superannuation payments. If stipulated beneficiaries are present under the policies, the payments will be made directly to the beneficiaries.

What is the role of an executor?

A person appointed as an executor of the estate will have to take the following responsibilities.

  • First of all, they have to manage tax affairs.
  • They have to carry out the terms specified in the will of the deceased person.
  • If there is no will, the executor will need to ensure that they comply with inheritance laws.
  • In brief, it is the job of an executor to use if the nominees are getting maximum benefits from the deceased state.

An executor usually replaces the deceased person and may start handling personal affairs. Their tasks may include:

  • Finding the will,
  • Making an application for probate,
  • Arranging the funeral,
  • Getting a death certificate,
  • Informing different investment bodies, including banks and building societies, of the death,
  • Informing different government bodies like the Tax office,
  • Finding the assets and making assessments of their values,
  • Paying funeral costs, income tax, and debts,
  • Transferring assets,
  • Distributing assets among the beneficiaries.

What are the tax responsibilities of an executor?

As per Australian law, death duties are usually not applicable. But if capital transactions or specific income arise as a direct result of a person’s death, you may need to pay tax. 

  • If any tax liability is generated from a person’s role as an executor, it will be considered separate from their personal tax liability. That is why it is recommended not to include any income of the deceased estate of the dead person in the personal tax return. However, if you receive any trust income as one of the beneficiaries, you can include that amount while filing your tax return. 

The tax responsibilities of an executor are as follows.

  • You must lodge a final return. In addition, if there is any outstanding prior-year return that the deceased person failed to lodge, you can lodge it for them.
  • You have to lodge trust tax returns associated with the deceased estate.
  • You must provide beneficiaries with the information they need to include in their own tax returns and pay tax on their behalf.

As an executor, you may also have to file a personal tax return for the deceased person. There are several reasons behind it, which we have discussed here.

  • The person may have tax withheld from their earned income.
  • The person has earned taxable income that has exceeded the tax-free threshold.
  • As there was no TFN or Tax File Number for the invested body, there may be tax withheld from dividends or interest.
  • They have filed tax returns every year.

CGT (Capital Gains Tax) implications

When the deceased estate assets are distributed among the nominees, a special rule is applied. This rule says, if the asset is passed to a beneficiary or the executor or from the executor to a beneficiary, CGT obligations will not be applicable.

  • But if an asset of the deceased estate is sold by the executor and then distributed to the beneficiaries, standard Capital Gains Tax rules apply.
  • Therefore, an income tax liability is not incurred when the CGT assets are transferred into a deceased estate and then to the nominated beneficiaries.

Superannuation death benefits

After the death of a person, the nominated beneficiary gets his payment from the remaining super amount in the deceased person’s superannuation fund. It is known as a super death benefit. 

But, what if there is no death nomination? In that case, it will be the responsibility of the appointed trustee of the super fund to decide on the payment method. Based on the rules and regulations for superannuation and the trust deed, the trustee may choose to give it to the deceased estate. 

After that, the executor may handle the entire process. But one thing to keep in mind is that super cannot be a part of the will in all the Australian states except New South Wales. If you are a dependent of the dead person, you should follow these rules.

  • You will not have to pay tax for any superannuation death benefit component if you get it as a one-time payment. 
  • You will need to pay tax only when you receive the benefit as an income stream.
  • In addition, this benefit should not be included as income on the personal tax return. 

For non-dependents, death benefits are paid as a lump sum, where taxed components are given at a rate of 15% and untaxed elements at a rate of 30%. For both the components, the Medicare levy is attached.

Final words

Apart from the tax return, investing in a deceased estate is also possible. But for that purpose, hiring a property investment advisor will be necessary. For help, you can get in touch with a top-rated financial consultancy firm.