When a loved one passes away, dealing with their tax affairs can be an important yet sensitive responsibility. Lodging the final tax return for a deceased person is a crucial step in ensuring their tax obligations are met and the estate is properly administered. This detailed guide provides step-by-step information on how to prepare and lodge the final tax return, key deadlines, documentation required, and important considerations for executors or administrators.
Who Is Responsible for Lodging the Final Tax Return?
The responsibility typically falls on the executor named in the will or, if there is no will, the administrator appointed by the court. This person manages the deceased’s financial and legal affairs, including dealing with the Australian Taxation Office (ATO).
What Is a Final Tax Return?
A final tax return covers the deceased person’s income from the start of the financial year until the date of death. It includes all sources of income such as wages, investments, business income, and any capital gains realised before death.
This return finalises the deceased’s tax obligations and is separate from any estate tax returns that may follow.
When Should the Final Tax Return Be Lodged?
The final tax return must be lodged by the due date, which is generally within 15 months of the date of death. However, the ATO may grant extensions upon request if needed.
It is important to lodge the return timely to avoid penalties and to facilitate estate administration.
Steps to Prepare the Final Tax Return
- Obtain the Death Certificate: A certified copy is often required by the ATO and financial institutions.
- Gather Income Information: Collect payment summaries, bank statements, dividend statements, business records, and other income documentation up to the date of death.
- Identify Deductions and Offsets: Include any allowable work-related deductions or tax offsets the deceased may be entitled to.
- Calculate Capital Gains or Losses: Assess any disposals of assets made before death and report accordingly.
- Complete the Tax Return: Use the ATO’s paper forms or online services, indicating the return is for a deceased taxpayer.
- Sign the Return: The executor or administrator must sign the return.
Income Earned After Death
Any income generated by the deceased’s estate after death (such as rent or dividends) is reported on a separate trust or estate tax return, not the final individual return.
Payment of Tax and Refunds
If the deceased owes tax, the executor or administrator must ensure the debt is paid from the estate’s assets before distribution. If a refund is due, it generally becomes part of the estate funds.
Dealing with the ATO
It is advisable to notify the ATO promptly of the death. The ATO can provide guidance on the required returns and assist with setting up a unique tax file number for the estate.
Communication with the ATO can often be managed through a registered tax agent.
Common Challenges and Tips
- Complex Financial Affairs: Seek professional assistance for business ownership, foreign income, or complex investments.
- Missing Documentation: Contact employers, banks, and other institutions early to obtain necessary records.
- Timely Lodgment: Keep track of deadlines and request extensions if needed.
- Clear Record-Keeping: Maintain detailed records of all transactions and correspondence related to the deceased’s tax affairs.
Conclusion
Lodging a final tax return for a deceased person is a key responsibility of executors and administrators that helps close the deceased’s tax matters and supports proper estate management. By understanding the process, gathering the right documentation, and meeting deadlines, you can fulfil this obligation efficiently. When in doubt, seek advice from registered tax professionals to ensure accuracy and compliance with ATO requirements during this sensitive time.
