When a person dies their tax obligations do not die with them. It is usually necessary to lodge a tax return for the financial year in which they died. However, if the deceased was not required to lodge a tax return before their death there may be no need to lodge a tax return if their circumstances have not changed. If in the course of the administration of the estate the deceased income is earned then tax may be payable. There are circumstances where an administration of an estate can go on for many years. For example where there is a legal dispute, or an asset cannot be sold or transferred because of a term in the will. In some cases it may not be the best time to sell an asset. Where a deceased estate earns income a tax return must be competed. This is the responsibility of the estate’s executors. The tax rates that apply to income of a deceased estate depend on the period of time after the person’s death.
For the first three income years, the deceased estate income is taxed at the individual income tax rates, with the benefit of the full tax-free threshold, but without the tax offsets (concessional rebates), such as the low-income tax offset. No Medicare levy is payable. You cannot extend this concessional period of three tax years.
For example: Joan passed away on 5 April 2011. The first tax year for Joan’s estate will cover the period 6 April 2011 to 30 June 2011. The second tax year will be from 1 July 2011 to 30 June 2012. The third tax year will be from 1 July 2012 to 30 June 2013. If Joan’s deceased estate earned taxable income of $18,200 or less during these years, there is no tax payable.
For deceased estates that continue to be administered beyond the third year, the following tax rates apply:
|Deceased estate taxable income (no present entitlement)||Tax rate|
|$0 – $416||Nil|
|$417 – $670||50% of the excess over $416|
|$671 – $37,000||If the deceased estate taxable income exceeds $670, the entire amount from $0 will be taxed at the rate of 19%|
|$37,001 – $80,000||$7,030 plus 32.5% of the excess over $37,000|
|$80,001 – $180,000||$21,005 plus 37% of the excess over $80,000|
|$180,001 and over||$58,005 plus 45% of the excess over $180,000|