In some instances, you may need to lodge a final tax return for the income year in which a loved one passed away. This particular tax return is termed a ‘date of death’ tax return. The date of death tax return is separate to the ‘trust’ tax return lodged for the deceased’s estate.
Who can lodge a ‘date of death’ tax return?
The date of death tax return may be lodged only after you have notified the ATO of your loved one’s death. You will also need to be entered into the ATO records as the person dealing with the deceased's tax affairs. In most cases, the legal personal representative (LPR) lodges the date of death tax return. If someone is not the LPR, the tax return can still be assessed but following assessment the ATO will need to determine how to lawfully proceed with the appropriate action.
When is a date of death tax return required?
A date of death tax return must be lodged if any of the following scenarios are relevant to your loved one in the income year in which they died:
- Your loved one’s taxable income was above the tax-free threshold.
- Your loved one lodged tax returns in the income years before their death or had outstanding tax returns.
- Your loved one had tax withheld from their income including from their dividends or interest.
Outstanding tax returns
When you notify the ATO of a loved one’s death, they can check the deceased’s records to determine if they had any outstanding tax returns for prior income years. If any such outstanding tax returns exist, these will need to be lodged with the ATO as soon as possible.
When a tax return is not required, the LPR is obliged to inform the ATO via a non-lodgment advice form. Where the form asks for the reason, the LPR should print DECEASED, followed by the date of death.
It is important to note that the date of death tax return spans from the 1st of July of the income year in which the person died up until their date of death. This is different to a trust tax return for the deceased estate which encompasses the period after the person died.
As only the person who holds the myTax or myGov account can use their online account, a date of death tax return must be lodged using the paper form tax return for individuals. Alternatively, a tax agent can prepare and lodge the return online.
The following information is required in order to prepare the tax return:
- Identifying information
- The deceased’s tax information
- Income and deductions
- Capital gains
- Study and training loan repayments
- Medicare Levy
At times, it may be difficult to find all the required information amongst your loved one’s personal effects. If you are the LPR of the estate, you may contact the ATO for missing information. If you are not the authorised LPR of the deceased estate, the deceased person's former tax agent may be able to help you with information and advice.
In cases where the income reported in the tax return is more than the minimum repayment threshold, the final assessment will include a final repayment. After this, any remaining debt is cancelled. The ATO will send the notice of assessment to the executor and include details of any tax owing or refund pending. All tax owing must be provided to the ATO prior to the distribution of the estate to the nominated beneficiaries. If this is not performed, the executor may be personally liable for any tax owing. In the case of a LPR, the ATO will release any refund or franking credits directly to them.
If no authorised LPR has been appointed, then the ATO will assess if they are able to release refunds or franking credits by taking into account both the terms of the Will, if a Will exists, or the rules of succession if the deceased passes intestate.
When a loved one dies, the amount of paperwork required to get sorted can be overwhelming. Once you have notified the ATO of a loved one’s passing, they will advise whether or not a final tax return is required, and provide help with completing the next steps.
If you need help with an application for Probate, the inhouse legal team at Willed can help. For a free, fixed fee quote, give them a call on 1300 945 533.