Being named an executor often comes with mixed emotions. On one hand, it’s a sign of trust. On the other, it brings legal, administrative, and tax responsibilities that many people have never dealt with before. In Australia, one of the most confusing areas for executors is handling deceased estate tax returns correctly.
In 2026, tax compliance around estates is under closer scrutiny, deadlines are firm, and mistakes can delay distributions or create disputes between beneficiaries. This guide is designed to help executors understand what actually needs to be done, when professional help becomes essential, and where common problems arise.
What Is a Deceased Estate for Tax Purposes?
From a tax perspective, a deceased estate is treated as a separate entity once a person passes away. This means the estate can earn income, incur expenses, and may need to lodge its own tax returns.
The estate begins at the date of death and generally ends once all assets are distributed to beneficiaries. During that period, the executor or administrator is responsible for managing the estate’s tax obligations.
Importantly, the deceased person and the estate are not the same taxpayer. This distinction is often misunderstood and leads to errors in lodgement.
The Final Individual Tax Return After Death
The first tax responsibility is lodging the deceased person’s final individual tax return.
This return covers:
- Income earned from 1 July up to the date of death
- Salary and wages
- Investment income (interest, dividends, rent)
- Capital gains where applicable
The return is marked as deceased, and the executor signs on behalf of the estate.
Even if the person normally did not lodge a return, one may still be required after death, particularly if income was earned in that final period.
When Does a Deceased Estate Tax Return Apply?
Once the person has passed away, any income generated by estate assets may require a separate deceased estate tax return.
Common examples include:
- Rental income from property held by the estate
- Interest earned on estate bank accounts
- Dividends from shares not yet transferred
- Capital gains from asset sales
If the estate earns income above the tax-free threshold, a return must be lodged. In some cases, multiple years of estate tax returns may be required if administration takes time.
Tax File Number and Estate Administration
A deceased estate needs its own Tax File Number (TFN) if it earns income. Executors must apply for this through the ATO before lodging any estate returns.
Other practical steps include:
- Opening an estate bank account
- Keeping estate income separate from personal funds
- Maintaining clear records of all transactions
Poor record-keeping is one of the most common issues that causes delays or ATO queries later.
How Deceased Estate Income Is Taxed
Deceased estates are taxed differently from individuals, particularly in the first few years.
Generally:
- The estate may access individual tax rates for a limited period
- Certain concessions apply during the administration phase
- Beneficiaries may be taxed on income once distributions occur
Understanding who is taxed the estate or the beneficiary depends on timing, entitlement, and whether income has been paid or merely accumulated.
This is an area where many executors struggle, especially when distributions are delayed or partial.
Capital Gains Tax and Deceased Estates
Capital Gains Tax (CGT) often becomes relevant when estate assets are sold.
Common CGT events include:
- Selling an inherited property
- Disposing of shares or managed funds
- Transferring assets out of the estate
In many cases, CGT is deferred until the asset is sold, not at the date of death. However, exemptions and concessions may apply, particularly for main residences.
The tax outcome depends on:
- When the asset was acquired
- How it was used
- Who ultimately receives it
CGT errors are costly and difficult to reverse once returns are lodged.
Deadlines Executors Need to Watch
Missing deadlines is one of the fastest ways to create unnecessary stress.
Key dates include:
- Final individual tax return lodgement
- Estate tax return lodgements
- BAS or PAYG obligations if applicable
- Distribution timing that affects beneficiary tax outcomes
The ATO does not automatically waive penalties simply because a person has passed away. Executors are still expected to act within reasonable timeframes.
Common Mistakes Executors Make
Executors often do their best, but certain mistakes come up again and again:
- Mixing personal and estate finances
- Lodging incorrect returns under the wrong TFN
- Distributing assets before tax issues are resolved
- Assuming no return is needed due to low income
- Overlooking capital gains implications
Many of these errors only become visible years later, sometimes during audits or when beneficiaries query outcomes.
When Professional Help Becomes Essential
While simple estates can sometimes be managed without assistance, many estates quickly become complex.
Professional support is strongly recommended when:
- Property is sold during administration
- There are multiple beneficiaries
- Income spans more than one financial year
- Assets include shares, trusts, or overseas holdings
Engaging a Deceased Estate accountant perth can help ensure compliance while reducing personal liability for executors.
Likewise, working with an experienced Accountant in Perth can be especially valuable when WA property or local tax considerations are involved.
Executor Responsibilities and Personal Liability
Executors are not personally taxed on estate income, but they can be personally liable if they fail to meet obligations.
This includes:
- Incorrect tax lodgements
- Unpaid tax debts before distribution
- Poor documentation
Taking a cautious, documented approach is not just good practice it protects the executor as well as the beneficiaries.
What Executors Should Do Early
A few early actions can make the entire process smoother:
- Obtain professional tax advice early
- Apply for the estate TFN promptly
- Keep detailed financial records
- Delay final distributions until tax matters are clear
Rushing distributions before tax issues are resolved often creates disputes and clawback problems later.
Final Thoughts
Deceased estate tax returns are rarely straightforward, especially as estates become more asset-rich and families more complex. In 2026, executors need to be more organised, better informed, and realistic about when expert help is needed.
Handled properly, estate tax obligations do not have to become a burden. With the right guidance and a clear understanding of responsibilities, executors can fulfil their role confidently and avoid unnecessary complications for everyone involved.
