Tax Process

5 Tips To Make Your Deceased Tax Process Easy

Business

After the death of a family member, other family members need to go through a range of administrative duties, one of them being the tax duties. In Australia, no taxes are imposed on deceased estates or inheritances. Instead, the dead person’s assets can directly pass to the legal heir according to the will, without any intervention of taxation authorities. A deceased estate accountant can offer professional advice regarding tax filing. In this blog, we discuss tips that may smoothen the dead tax procedure.

Tip 1: Understand the tax Process obligations applied after the death of the person

Even though there are no available death taxes in Australia, a tax obligation is applicable for ordinary investments and earnings if a person dies. You will need to file the tax return on behalf of the deceased person if one of the following situations applies.

  • The person has tax withheld from their earnings in the year they die.
  • Their taxable income crossed the tax-free threshold of $18200.
  • They had tax withheld from dividends or interests because there was no TFN quoted to the investment body. 
  • They had filed tax returns in the income years before their death. 
  • If the person had a business or was a sole trader, there will also be some obligations. These taxes will include business activity statements (BAS) or PAYG (pay as you go) withholding amounts. 
  • Unpaid debts to the Australian Taxation Office should also be paid from the assets held by the deceased estate.

In contrast, if the deceased person did not have any such income as mentioned above, you have to notify the Australian Taxation Office that a tax return is not needed.

Tip 2: Notify the Australian Taxation Office of the death

Once a person dies, it is essential to inform the Australian Taxation Office of the news if they had previously submitted a tax return and held a Tax File Number (TFN). 

The person responsible for administering the estate of a deceased person is called an ‘Executor’ who must inform the ATO of the death. 

If you are the executor, you must complete an online form to inform the ATO of the death. You should first print the form, fix an appointment for an interview within one month of completing it, and submit several documents, which include:

  • Death certificate copy
  • Certified copy of the Grant of Probate/the Will/the Letters of Administration

If there is no Will or Letters of Administration, you will need to submit the following documents.

  • A certified copy of the death certificate is needed for this purpose too.
  • In addition, you will need to give a letter to clarify why there are no Letters of Administration. You should also mention the Next of Kin, who must be nominated to be the authorised contact for all tax-related affairs of the deceased estate.

Once the ATO receives the information, they will confirm it via post.

Tip 3: Keep in mind the vital considerations when completing the tax returns

While completing the tax process return, it will be vital to remember the following rules and regulations.

  • Tax returns related to the deceased person and estate for the financial year that ends on 30 June should be lodged within 31 October that year. If you find it challenging to maintain the deadline, you must contact the Australian Taxation Office and ask for an extension by explaining your situation.
  • If you want to lodge tax returns on behalf of a deceased person, you should complete the process using paper forms and not online. 
  • On the top of the first page, you should write the words’ DECEASED ESTATE’. 
  • On behalf of the deceased person, it will be you who will sign the tax return as an administrator or executor.
  • Depending on the lodged tax return, you have to mention the Tax File Number of the deceased person.
  • If you need to submit a Deceased Estate Tax Return, you have to apply for a TFN for the estate.

Tip 4: Know the types of tax return

Usually, three tax return types may apply to your situation. All three types are discussed here.

Outstanding Individual Tax Returns

For this type of return, you have to check whether the deceased person had lodged tax returns in the past. This return will be applicable for the following conditions.

  • They had received regular payments from an employer.
  • They had earned from bank interests.
  • Earning was made from investments and dividends.
  • Earning was made from the trust.
  • They received money from capital gains after selling an asset.

Date of Death Tax Return

After completing the individual tax returns, you will need to complete the Death Tax Return to complete the tax process. It will be applicable when the following conditions apply.

  • The deceased person’s total taxable income exceeded the threshold value.
  • The tax was withheld on the income the dead person had earned.
  • The person had lodged an income tax return before their death.

Deceased Estate Tax Return (Trust Tax Return)

A trust tax return must be submitted if capital gains are generated from selling assets or earned from administering a deceased estate. Remember, you will need to lodge this return for all financial years until the deceased estate is entirely distributed.

Tip 5: Be aware of the hidden death taxes

Despite there being no death taxes in Australia, family members still need to be aware of specific tax rules. Otherwise, they may face a huge tax bill.

Superannuation

If a deceased person’s superannuation is directly passed onto a non-dependent like children, a 15% tax will be levied by the ATO to the taxable part of the balance.

Capital Gains Tax (CGT)

This tax is levied when a person sells an investment property or an asset.

CGT exemptions

Will beneficiaries can enjoy CGT exemptions if they sell the inherited house within a specific time limit.

Final words

The tax return procedure may be tricky and complicated. For convenience, you may consult a professional tax accountant. Just type ‘personal accountant near me‘ and contact the most reputed accountant office in your nearby area.

Related: Tax Obligations To Know About Before Investing In SMSF