The administration of a deceased estate is not limited to executing the provisions of a will and transferring the assets of the deceased to their beneficiaries. The executor of the estate may also have to deal with matters relating to outstanding tax returns, interest on investments, property transfers, and capital gains.
The taxation regulations in Australia can be rather complex where a deceased estate owns property, stock, rental property, superannuation, or even carries out business activities.
Why Executors Need to Pay Close Attention to Tax in 2026
Tax obligations can continue after a person’s death, and the requirements may change depending on the assets owned, income generated and stage of estate administration. An executor may need to deal with the deceased person’s final tax return as well as tax matters arising from the estate.
Property sales, investment income, rental earnings and inherited assets can all create different tax considerations. Keeping accurate records and identifying potential obligations early can make estate administration considerably easier.
Where an estate has complex assets or multiple beneficiaries, professional advice can also help the executor make informed decisions before assets are distributed.
1. The Deceased Person’s Final Tax Return
A person’s tax affairs do not automatically end when they pass away. A final individual tax return may need to be lodged for the period from the beginning of the relevant financial year until the date of death.
This return can include employment income, investment income, rental income and other assessable amounts earned before death. Any outstanding tax liabilities should also be identified.
The executor or authorised legal personal representative generally manages these tax affairs. Gathering bank statements, payment summaries, dividend records, rental information and other financial documents early can make the process much easier.
2. Tax Returns for the Deceased Estate
The estate itself can have tax obligations after the person’s death. Assets may continue generating income while the executor is completing the administration process.
For example, an estate might receive rent from an investment property, interest from bank accounts or dividends from shares. Depending on the circumstances, a trust tax return may need to be lodged for the deceased estate.
The tax treatment can also vary according to the stage of administration and whether income is retained by the estate or becomes assessable to beneficiaries. Executors should therefore avoid assuming that the deceased person’s final tax return is the only return that needs to be considered.
3. Capital Gains Tax on Inherited Property
Inherited property is one of the areas most likely to create confusion for executors and beneficiaries. Simply receiving an inherited property does not generally mean an immediate capital gains tax bill arises.
However, CGT may become relevant when the property is later sold. The tax treatment can depend on factors such as when the deceased acquired the property, how it was used, whether it was their main residence and the circumstances of the eventual sale.
In some situations, special rules may apply to property disposed of within two years of the person’s death. However, eligibility depends on the circumstances, so executors should not assume that every inherited home can be sold without tax consequences.
Obtaining advice before selling a significant property can help identify potential CGT issues and ensure the transaction is handled correctly.
4. Income Earned While the Estate Is Being Administered
An estate can continue earning income after death. A rental property may produce rent, savings may generate interest, and shares may continue paying dividends.
This income needs to be properly recorded and dealt with for tax purposes. Executors should keep clear records showing which income was earned by the deceased before death and which income was generated by the estate afterwards.
Separating these amounts is particularly important when an estate remains open for an extended period. Delays in selling property or resolving disputes between beneficiaries can mean that estate assets continue producing income for months or even years.
5. Establishing the Correct Cost Base of Inherited Assets
Another issue that can easily be overlooked is determining the cost base of inherited assets.
If an inherited asset is later sold and CGT applies, the cost base is an important part of calculating the capital gain. The relevant rules can depend on how the deceased originally acquired the asset and other circumstances surrounding the inheritance.
For property, executors may need historical purchase documents, valuation information and records of eligible expenses. For shares and investments, acquisition dates, purchase costs and other transaction records can be important.
When records are incomplete, professional assistance may be needed to establish the most appropriate tax position based on the available evidence.
6. Understanding Beneficiary Tax Obligations
Receiving an inheritance and receiving taxable income from an estate are not necessarily the same thing.
Australia does not generally impose an inheritance tax simply because a beneficiary receives an inheritance. However, beneficiaries may have tax obligations relating to income or certain assets associated with the estate.
For example, income generated by estate assets may be distributed or attributed to beneficiaries depending on the circumstances. The tax treatment can vary according to the type of income, the beneficiary’s entitlement and the stage of estate administration.
Executors should understand these implications before making substantial distributions, particularly when an estate has several beneficiaries or produces significant income.
7. Checking Tax Obligations Before Final Distribution
Before an estate is fully distributed, the executor should ensure that relevant tax obligations have been properly addressed.
This can include outstanding tax returns, potential capital gains, income earned during administration and other liabilities. Making final distributions before understanding these obligations can create difficulties if an unexpected tax bill appears later.
A careful review of the estate’s financial position can help determine whether sufficient funds should be retained to meet known or potential liabilities.
Professional advice can be especially valuable where the estate includes property, investments, business interests or other assets that make the tax position more complicated.
When Should an Executor Seek Professional Help?
Not every estate requires extensive accounting assistance. However, professional advice can be worthwhile when an estate involves multiple assets, property sales, investment income, missing financial records or complicated beneficiary arrangements.
A Deceased Estate Accountant can help review the deceased person’s tax affairs, identify estate-related reporting requirements and assist with calculations involving income and capital gains.
An accountant can also work alongside the executor’s solicitor. While the solicitor may focus on legal and probate matters, the accountant can concentrate on financial records, tax returns and the tax consequences of estate transactions.
For executors managing an estate in Western Australia, a tax accountant perth can provide local accounting support and help navigate relevant tax reporting requirements.
Final Thoughts
Taxation forms a critical aspect in managing a deceased estate, but this does not have to be a stressful process. The only way to do this is to find out what the obligations are early on and keep good records. In some instances, it is wise to seek professional help especially in complex estates.
Issues such as the tax on the deceased individual, the income from the estate, inherited assets, and capital gains among other considerations may impact how the deceased estate will be managed.
Through proactive tax planning and reporting, executors can avoid overlooking any tax obligations in the management of the deceased estate.
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