The cliché is there’s nothing surer than death and taxes, but here’s another. When death comes, tax affairs surely follow.
The first steps
So if someone close to you dies and you are the one responsible for taking over their tax affairs there are a number of steps to take to advise the ATO of their passing. This starts with: establishing your identity with the ATO as the deceased’s representative; and formally notifying the ATO of the death of the deceased – with a death certificate of the deceased or a grant of probate or letters of administration.
Authorised representative
To have the full authority to manage the tax issues of someone who has died – and to have complete access to their information and assets – you will need to be their authorised legal personal representative (LPR). This is usually the executor named in the will, or if no executor has been named, a court-appointed administrator (this can be the next of kin). To be recognised as an LPR for tax purposes, you will need a supreme court (in your state) to recognise that the deceased’s will is legal, allowing you as the executor to represent the deceased’s estate and distribute their assets according to the will. Where there is no will, a grant of letters of administration are issued to the person (this is often the next of kin) to manage the estate, and they are appointed as the administrator of the estate.
Tax responsibilities of the LPR
The tax-related responsibilities of the LPR follow. You will need to: lodge a date of death tax return for the deceased person; and provide for any tax liabilities before the estate’s assets are distributed to beneficiaries.
Checking business status
You will need to be aware of whether the deceased carried on a business and if so you will need to seek specialised legal or tax advice. In the case of a sole trader or a business partner, it’s likely you will need to lodge a business activity statement (BAS) for the final quarter of their life, and any outstanding BASs. You will need to pay any tax owing, and this could include goods and services tax (GST) and capital gains tax (CGT) applicable on the sale of any business assets.
Lodging final tax returns
You also may need to lodge the deceased’s final tax return, known as the ‘date of death’ tax return, and check if any other year tax returns are outstanding and arrange payment for those, with help from the ATO to access the deceased’s tax information. Also you must finalise any tax obligations before distributing the assets of the estate to the beneficiaries. A further tax task is to ascertain whether the estate of the deceased receives any income from assets such as rental property or shares, and/or is due to claim any tax refund or franking credits that are owed. If this is the case then for tax purposes the estate is treated as a trust and you will need to lodge a ‘trust tax return’ for the estate.
And finally … You simply need to ensure that all tax liabilities have been paid, that credits owing to the deceased and their estate have been received, and that all tax registrations have been cancelled (such as an ABN and registration for GST etc). After all of the above requirements have been met, you will then be able to distribute the assets of the estate to the beneficiaries following probate. And if all these responsibilities seem too overwhelming to carry out on your own – and to ensure due diligence in meeting the ATO’s stringent requirements, we are here to support and guide you through the process. It’s important to be aware that finalising the administration of the estate can take between six to 12 months or longer.
