How estate income is reported and assessed
You may need to lodge trust tax returns for a deceased estate if it earns income after the person's death.
If a return needs to be lodged, the estate is treated as a trust for tax purposes. The trustee is usually the deceased person's legal personal representative (LPR).
As trustee, you:
- report all income of the deceased estate after the date of death in the trust tax return
- pay any tax on the net income of the estate, unless a beneficiary is 'presently entitled' to that income.
Generally, beneficiaries will only become presently entitled to the income of a deceased estate when it is fully administered.
This means you, as trustee, will normally be responsible for any tax on the estate's net income in the years before the estate is fully administered.
If a beneficiary is presently entitled to income of the estate, and is not under a legal disability or non-resident, then the beneficiary:
- will report their share of the net income in their individual tax return
- is responsible for paying any tax due.
Different rules apply if a beneficiary is a non-resident or under a legal disability. In these situations, you (as trustee) pay the tax on their share of the net income on their behalf.
Reporting income and paying tax in the stages of administration
There are different stages of administration of a deceased estate.
Before probate or letters of administration are granted
At this stage, beneficiaries are not presently entitled to the income of a deceased estate.
This means you include any net income of the estate in the trust tax return, and you (as trustee) are responsible for paying any tax on this amount.
Probate or letters of administration are granted but final distribution is not ready
At this stage, beneficiaries are generally not presently entitled to the net income of a deceased estate.
However, you (as trustee) can make an interim distribution if you are certain that the remainder of the estate is sufficient to cover any outstanding liabilities.
If you pay any income to a beneficiary before the estate is fully administered, they are considered to be presently entitled to it.
If you distribute any income and the beneficiary is:
- a resident and not under a legal disability, the beneficiary is responsible for including their share of the net income in their own tax return and paying any tax owing
- under a legal disability (such as being under 18), you include their share of the net income in the trust tax return and pay tax on their behalf on this amount
- a non-resident, you include their share of the net income in the trust tax return and pay tax on their behalf on this amount.
Superannuation death benefits and death benefit termination payments received by the estate are considered income to which no beneficiary is presently entitled.
Administration is complete and estate is distributed
At this stage, obligations are paid or provided for in full, and the net income of the estate is available for distribution.
When you distribute the income and a beneficiary is:
- a resident and not under a legal disability, the beneficiary is responsible for including their share of the net income in their tax return
- under a legal disability (such as being under 18), you include their share of the net income in the trust tax return and pay tax on their behalf on this amount
- a non-resident, you include their share of the net income in the trust tax return and pay tax on their behalf on this amount.
In the income year in which the deceased estate is fully administered, you may be able to apportion the net income. In this case:
- Income derived in the period between the beginning of the income year and the day administration is complete is assessed for tax in your hands as the trustee of the estate.
- Income derived in the period between the day administration was complete and the end of the income year is assessed for tax to the beneficiaries who are presently entitled.
If you want to apportion the net income:
- you need evidence that it was actually derived during these periods – you cannot apportion income into the two periods merely on a time basis
- you or the beneficiaries must request that the income be apportioned in this way.
Beneficiaries the trust reports and pays for
As the trustee, you will need to report and pay for certain beneficiaries.
Beneficiary under a legal disability
A beneficiary is under a legal disability if they are:
- under 18 years of age on 30 June of the income year
- bankrupt
- declared legally incapable due to a mental condition.
You include the beneficiary's share of the net income in the trust tax return and pay tax on their behalf.
The estate is assessed separately for each beneficiary who is presently entitled but under a legal disability.
- The general individual income tax rates apply. (Normally, unearned income of minors is taxed at higher rates, but this rule does not apply to income from a deceased estate.)
- The Medicare levy and Medicare levy surcharge apply.
- You can claim any tax offsets to which the beneficiary would be entitled.
- The low-income and low-and-middle income tax offsets are automatically applied by our systems if the beneficiary's income is below the threshold. The low-and-middle income tax offset is not available in the 2022-23 and later income years.
- For other offsets, you need to include a statement with the estate's trust tax return showing the type and amounts of tax offsets claimed.
Beneficiary is a non-resident
If the beneficiary is presently entitled and a non-resident of Australia for tax purposes at the end of the income year:
- you pay tax on their share of the estate's net income at the non-resident tax rates
- no Medicare levy is payable.