There are no inheritance or estate taxes in Australia. The person responsible for administering a deceased estate is most commonly referred to as an executor, but could also be an administrator where letters of administration are granted by a court. Both are considered a legal personal representative by us.
When a person dies, there are some important tax and superannuation issues for the executor and the beneficiaries, including:
- NOTIFYING ATO
- ACCESSING A DECEASED PERSON’S INFORMATION
- DOING TAX RETURNS FOR A DECEASED PERSON
- DOING TRUST TAX RETURNS FOR A DECEASED ESTATE
- IF YOU ARE A BENEFICIARY OF A DECEASED ESTATE
IF YOU ARE A BENEFICIARY OF A DECEASED ESTATE
There may be some tax obligations for beneficiaries, depending on the nature of any distribution they may receive:
- RECEIVING SUPER BENEFITS
- RECEIVING ASSETS
- EARNING INCOME
- BENEFICIARIES PRESENTLY ENTITLED BUT UNDER A LEGAL DISABILITY
- NON-RESIDENT BENEFICIARIES
RECEIVING SUPER BENEFITS
If the deceased person had super, the super fund’s trustee will work out who to pay any benefit to [either as a lump sum or an income stream]. Super paid after a person’s death is called a ‘super death benefit’. The tax on a super death benefit depends on:
- WHETHER YOU WERE A DEPENDENT OF THE DECEASED UNDER TAXATION LAW
- WHETHER IT IS PAID AS A LUMP SUM OR INCOME STREAM
- WHETHER THE SUPER IS TAX-FREE OR TAXABLE AND WHETHER THE SUPER FUND HAS ALREADY PAID TAX ON THE TAXABLE COMPONENT
- YOUR AGE AND THE AGE OF THE DECEASED PERSON WHEN THEY DIED (FOR INCOME STREAMS).
Capital gains tax (CGT) applies to the disposal of an asset; so if you receive an asset you are not affected by CGT. If you later sell that asset, CGT may apply.
If you as a beneficiary are presently entitled to income of the deceased estate, the income is assessable in the year your present entitlement arose, not in the year the amount is received.
For example, if you were presently entitled to the deceased estate income on 30 June 2018 but did not receive it until September 2018, you are personally assessable on that amount in the year ended 30 June 2018, not in the year ended 30 June 2019.
COMPLETING YOUR TAX RETURN
As a beneficiary, you need the following information:
- YOUR SHARE OF TRUST INCOME TO WHICH YOU ARE PRESENTLY ENTITLED
- THE AMOUNT OF YOUR ENTITLEMENT THAT WAS PAID TO SOMEONE ELSE FOR YOUR BENEFIT
- THE ASSESSABLE INCOME AMOUNT
- YOUR SHARE OF FRANKING CREDITS ASSOCIATED WITH ANY DIVIDENDS IN THE TRUST DISTRIBUTION
- THIS MEANS THAT THE COMPANY PAYING THE DIVIDENDS HAS PAID INCOME TAX FOR THE AMOUNT.
- IF YOU ARE AN AUSTRALIAN RESIDENT BENEFICIARY, YOU ARE ENTITLED TO THE ASSOCIATED FRANKING CREDIT WHEN THE INCOME DISTRIBUTION IS INCLUDED IN YOUR TAX RETURN FOR INDIVIDUALS.
BENEFICIARIES PRESENTLY ENTITLED BUT UNDER A LEGAL DISABILITY
If you are a beneficiary presently entitled but under a legal disability you also need to know the amount of tax the trust paid on your behalf. If you need to lodge your own tax return you are entitled to receive a tax credit for this so that the same amount isn’t taxed twice.
If you are a non-resident beneficiary, you will also need to know the amount of:
- INTEREST IN YOUR DISTRIBUTION AND THE WITHHOLDING TAX PAID
- UNFRANKED DIVIDENDS IN YOUR DISTRIBUTION AND THE WITHHOLDING TAX PAID
- FRANKED DIVIDENDS IN YOUR DISTRIBUTION
- TAX THE TRUST PAID ON YOUR BEHALF
Kim Sandhu – Senior Accountant
CPA – B.Com M.Acc