ATO Guideline Eases Finalisation of Less Complex Deceased Estates
The ATO has recently released a guideline that provides greater certainty for certain legal personal representatives (LPRs), including executors and administrators, of less complex deceased estates. The guideline allows qualifying estates to be finalised before the end of the usual review period without the risk that the LPR may need to personally fund any outstanding tax liabilities of the deceased.
This change is intended to support quicker and more efficient administration of eligible deceased estates, subject to specific conditions being met.
When the Guideline Applies
For the guideline to apply, the LPR must have obtained probate of the deceased person’s will or letters of administration for the estate. In addition, the deceased estate must be considered “less complex” under the ATO’s criteria.
What Is a Less Complex Estate
An estate will only be considered less complex if all of the following conditions are satisfied.
Deceased Person’s Circumstances Before Death
In the four years prior to their death, the deceased person:
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Did not carry on a business
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Was not assessable on a share of the net income of a discretionary trust
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Was not a member of a self-managed superannuation fund
Types of Assets in the Estate
The assets of the estate consist only of:
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Public company shares or interests in widely held entities
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Superannuation death benefits
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Australian real property
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Cash, cash investments and other personal assets such as cars, jewellery and household contents
The total market value of the estate’s assets must have been less than $10 million at the date of death.
Who the Assets Are Distributed To
None of the estate assets can pass to:
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A foreign resident
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A trustee of a complying superannuation entity
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A tax-exempt entity
This exclusion does not apply to testamentary gifts where section 118-60 of the ITAA 1997 allows the capital gain to be disregarded.
Personal Liability of Legal Personal Representatives
An LPR will be personally liable for any tax debts owed by the deceased at the date of death if the LPR had notice of those amounts from the ATO and proceeded to distribute the estate assets regardless.
The guideline is designed to provide protection only where the LPR does not have notice of outstanding liabilities and has acted appropriately in managing the deceased’s tax affairs.
When the ATO Will Treat an LPR as Having No Further Notice
Under the guideline, the ATO will treat an LPR as not having notice of any further tax claims relating to the deceased’s tax affairs if certain conditions are met.
Acting Reasonably in Lodging Tax Returns
The LPR must have acted reasonably in lodging all outstanding tax returns for the deceased person, or in advising the ATO that no returns were required.
Acting reasonably includes:
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Ensuring outstanding returns were lodged correctly
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Exercising sound judgment
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Acting with appropriate care and prudence
An LPR cannot blindly rely on a co-LPR, solicitor or accountant. However, reliance on relevant written professional advice obtained on specific matters may support a conclusion that the LPR acted reasonably.
No ATO Audit Notification
The ATO must not have notified the LPR within six months of lodging the final outstanding return, or advising that lodgment was not required, that it intended to examine the deceased person’s tax affairs.
If both of these conditions are satisfied, the ATO will not pursue the LPR personally for further tax liabilities relating to the deceased’s pre-death tax affairs.
Important Limitations of the Guideline
The guideline does not apply in all circumstances.
Post-Death Estate Tax Liabilities
The guideline does not cover any tax-related liabilities that arise in relation to the deceased estate after the date of death.
Probate or Administration Required
The guideline does not apply if probate or letters of administration have not been obtained.
Getting Advice
Administering a deceased estate can be complex, even where the estate appears straightforward. If you are acting as an executor or administrator and have questions about tax obligations or the application of this ATO guideline, professional advice can help ensure the estate is finalised correctly and efficiently.
Speak to one of our accountants if you have any questions about the changes in tax for 2024 or how they may affect a deceased estate.
Speak to one of our accountants if you have any questions about the changes in tax for 2024.
