Deceased Estates and Tax in Australia 2025–26: What Every Executor Needs to Know
Losing a loved one is one of life’s most difficult experiences — and the last thing most families want to think about is tax. But if you’ve been named as an executor, or you’re a beneficiary of an estate, understanding the tax obligations that arise after death is essential. Get it wrong, and you could face unexpected tax bills, penalties, or even personal liability.
The good news: Australia has no inheritance tax. But death does trigger a range of tax obligations — from a final individual tax return to capital gains tax on inherited property and tax on superannuation death benefits. This guide walks you through what you need to know for 2025–26.
What Happens to Tax Obligations When Someone Dies?
For income tax purposes, death creates a clear dividing line:
- Up to the date of death: The deceased’s income and deductions are reported in a final individual “date of death” tax return.
- After the date of death: Income generated by estate assets — rent, dividends, interest — is dealt with through the deceased estate, which is treated as a trust for tax purposes.
Outstanding tax returns from earlier years must also be lodged. The executor (known as the Legal Personal Representative, or LPR) is responsible for identifying and completing all outstanding obligations before distributing the estate.
The Executor’s Tax Responsibilities
As executor, your tax responsibilities can include:
- Notifying the ATO of the death
- Locating and lodging any outstanding individual tax returns
- Preparing and lodging the date-of-death tax return
- Obtaining a Tax File Number (TFN) for the deceased estate
- Lodging deceased estate trust tax returns
- Paying tax on estate income
- Providing beneficiaries with the information they need for their own returns
- Retaining records for inherited CGT assets
- Ensuring all tax debts are paid before distributing the estate
Important: Distributing assets before settling tax debts can make you personally liable for those debts, up to the value of assets distributed. Always confirm tax obligations are complete before making final distributions.
How to Notify the ATO
You should notify the ATO of the death as soon as possible. There are two ways to do this:
- Online: Complete the ATO’s online notification form, then attend an identity-verification interview at a participating Australia Post outlet with the required documents.
- By post: Send the paper Notification of a Deceased Person form (NAT 74279) with certified supporting documents.
The ATO can take up to 28 days to process the notification. Once recognised as the authorised LPR (usually requiring probate or letters of administration), you can request a deceased-estate data package covering the previous three income years — useful if you’re unsure whether all returns have been lodged.
The Date-of-Death Tax Return
The final individual tax return covers the period from 1 July in the year of death to the actual date of death. It’s required if the deceased:
- Had tax withheld from income
- Had taxable income above the tax-free threshold
- Had outstanding returns from earlier years
Key Rules for This Return
- It must be lodged on paper (myTax is restricted to the account holder)
- Write “DECEASED ESTATE” at the top of the first page
- Sign as “LEGAL REPRESENTATIVE OF [name] (DECEASED)”
- Income earned after death (post-death rent, dividends, interest) does not belong in this return — it belongs to the estate
Tax on Estate Income: The Trust Tax Return
Once the estate starts earning income after death, it’s treated as a trust. A separate trust tax return may be required.
When Is a Trust Return Required?
In the first three income years, a trust return is needed if:
- Net income exceeds the individual tax-free threshold
- A beneficiary is presently entitled to estate income
- A beneficiary is a non-resident
From the fourth income year onwards, a trust return is required if the estate earns any income, including a capital gain.
Who Pays the Tax?
- If no beneficiary is presently entitled to income, the LPR pays tax as trustee
- A resident adult beneficiary who is presently entitled reports their share in their own tax return
- If a presently entitled beneficiary is a non-resident or under a legal disability, the trustee pays tax on their behalf
Good news for minor beneficiaries: Income received by a child from a deceased estate can qualify as “excepted income” and be taxed at ordinary adult rates — not the higher rates that usually apply to minors’ investment income.
2025–26 note: Qualifying deceased estates can use concessional individual tax rates (including the full tax-free threshold) for their first three income years. Medicare levy and Medicare levy surcharge do not apply to deceased estate trust returns.
Capital Gains Tax on Inherited Assets
There’s generally no CGT event when an asset passes to a beneficiary under a will or intestacy — the transfer itself doesn’t trigger a capital gain. But CGT can arise when the executor sells an asset during administration, or when the beneficiary later disposes of it.
Cost Base of an Inherited Asset
The starting cost base depends on when the deceased acquired the asset:
- Acquired before 20 September 1985: The inherited cost base is generally the market value at the date of death
- Acquired on or after 20 September 1985: The cost base is generally the deceased’s cost base at death
A special exception applies to dwellings: if the property was the deceased’s main residence immediately before death and was not being used to produce income, the cost base may be reset to market value at death.
The Two-Year Rule for Inherited Homes
A full CGT main residence exemption can apply to an inherited home if settlement occurs within two years of death, provided:
- The deceased acquired it before 20 September 1985, OR
- It was the deceased’s main residence immediately before death and was not income-producing
The two-year clock runs to settlement, not just signing the contract. If you’re selling an inherited home, don’t leave it too late.
Can the two-year period be extended? Yes, in limited circumstances — for example, where a will challenge, complex administration, or a failed settlement (outside your control) delayed the sale. The ATO has a safe-harbour rule and a discretion process, but executor inactivity, renovations, or waiting for better prices generally won’t qualify.
Superannuation Death Benefits and Tax
Super doesn’t automatically form part of the estate — it’s paid according to the fund’s rules and any binding death benefit nomination. The tax treatment depends on:
- Who receives the benefit — is the recipient a tax dependant?
- How it’s paid — lump sum or income stream?
- The components — tax-free, taxed, and untaxed elements
Tax Dependants (for Tax Purposes)
A tax dependant includes:
- A spouse or de facto spouse (including former)
- A child under 18
- A person in an interdependency relationship
- Anyone financially dependent on the deceased at the time of death
Lump sum to a tax dependant: Tax-free — no PAYG withholding, not included in assessable income.
Lump sum to a non-dependant (e.g., an adult child): The taxable component is taxed at:
- 15% on the taxed element (17% withholding rate)
- 30% on the untaxed element (32% withholding rate)
The 2025–26 untaxed plan cap is $1.865 million.
Non-dependants generally cannot receive super as an income stream — it must be paid as a lump sum.
Practical Checklist for Executors
- Locate the will and confirm your role as executor
- Notify the ATO of the death (informally first, then formally)
- Obtain probate or letters of administration
- Request the deceased-estate data package from the ATO
- Identify and lodge any outstanding individual tax returns
- Prepare the date-of-death paper tax return
- Apply for an estate TFN (and ABN if needed)
- Determine whether trust tax returns are required each year
- Track the two-year settlement deadline for any inherited home
- Confirm super death benefit tax treatment before funds are distributed
- Pay all tax debts before distributing the estate
Get Expert Help from TaxServe Australia
Deceased estate tax is one of the most complex areas of Australian tax law. Foreign assets, operating businesses, self-managed super funds, contested wills, and complex ownership histories can all change the picture significantly.
TaxServe Australia’s experienced tax professionals can help you:
- Prepare and lodge the date-of-death tax return
- Navigate CGT on inherited property
- Understand super death benefit tax obligations
- Ensure the estate is fully compliant before distribution
Don’t navigate this alone. Contact TaxServe Australia today for expert, compassionate guidance through every step of the deceased estate tax process.
Sources
- ATO — Deceased estates: checklist — what to do when someone dies
- ATO — Doing a final tax return for the deceased person
- ATO — Trust tax returns for deceased estates
- ATO — CGT and inherited assets
- ATO — Inherited property and CGT
- ATO — Superannuation death benefits
- ATO — Notifying us of a death
- ATO — Tax rates for deceased estates