ATO Deceased Estate: Tax Returns, TFNs, and Deadlines Executors Must Know

The bank accounts are frozen, the funeral is paid for, and now the ATO wants its share. Most executors discover — usually too late — that the Australian Taxation Office treats the deceased person and their estate as two completely separate tax entities. That means two different tax file numbers, two different types of returns, and a hard 3-year deadline that nobody warns you about until the penalties arrive.

Here's what you actually need to do, in order.

The Date-of-Death Tax Return

Your first obligation is lodging a final individual tax return for the person who died. This return covers income earned from 1 July of the current financial year up to the exact date of death — not a day more.

You'll need to gather:

• Payment summaries from employers or superannuation funds
• Bank interest statements (request these directly — the deceased won't receive an annual statement)
• Dividend statements from share registries
• Rental income records up to the date of death
• Any capital gains triggered by asset disposals before death

Lodge this return under the deceased's existing TFN. You can do it through a tax agent or via the ATO's paper form (the online portal won't work once the ATO records the death notification). Mark the return as "final" so the ATO closes the individual record.

One trap: if the deceased was receiving a government pension and it wasn't cancelled promptly after death, those overpayments become a debt the estate owes. The ATO and Services Australia share data, so this will surface during assessment.

The Estate Trust TFN — A Separate Entity

Once the date-of-death return is lodged, the estate itself becomes a trust for tax purposes. You need to apply for a brand new Trust Tax File Number through the ATO. This is not optional — any income the estate earns after the date of death (rent from a property still in the estate, dividends from unsold shares, bank interest on the estate account) must be reported under this new TFN.

Apply using the ATO's online registration service or by submitting a Trust TFN application form. You'll need the Grant of Probate or Letters of Administration as supporting documentation.

The Estate Trust Tax Return

For each financial year the estate remains open, you must lodge a Trust Tax Return reporting all income earned by estate assets. This includes:

• Interest on the estate bank account
• Rental income from property held in the estate
• Dividends from shares not yet transferred to beneficiaries
• Capital gains from selling the deceased's home (if it wasn't their main residence at death, or if it's sold more than 2 years after death) or other assets

The estate gets its own tax-free threshold in the first year. After that, concessional rates apply — but only for 3 years from the date of death.

The 3-Year Cliff

This is the deadline that catches executors who let estates drag on. For the first 3 years after death, the deceased estate trust is taxed at normal individual marginal rates, including the tax-free threshold. After 3 years, the ATO strips all concessions. Undistributed income gets taxed at the top marginal rate — currently 45% plus the Medicare levy.

If you're still holding assets in the estate after 3 years because of a contested will or slow property sale, the tax hit is brutal. This is one of the strongest arguments for distributing assets as efficiently as possible once the 6-month family provision claim period expires.

Capital Gains Tax on Inherited Assets

A common misconception: inheriting assets doesn't trigger CGT. The CGT event happens when the beneficiary eventually sells the asset. But the cost base depends on when the deceased acquired it:

• Pre-CGT assets (acquired before 20 September 1985): The cost base resets to the market value at the date of death. Beneficiaries only pay CGT on gains after that date.
• Post-CGT assets: The original cost base carries through. The beneficiary inherits both the asset and the deceased's cost base, meaning gains accumulated over the deceased's lifetime are eventually taxed.

The main residence exemption can extend for up to 2 years after death if the property was the deceased's home. Sell within 2 years and there's no CGT. After that, the exemption is lost and the full capital gain is assessable.

Superannuation Death Benefits

Superannuation sits outside the estate unless the will specifically directs it there or there's no valid binding death benefit nomination. The tax treatment depends entirely on who receives the payout:

• Tax dependants (spouse, child under 18, financial dependant): The death benefit is tax-free, regardless of the taxed/untaxed components.
• Non-tax dependants (adult children, siblings, friends): The taxed component is taxed at 15% plus Medicare levy. The untaxed component is taxed at 30% plus Medicare levy.

This distinction catches families off guard. An adult child who receives a $400,000 super payout with a large untaxed component can face a tax bill exceeding $100,000.

What to Do First

1. Notify the ATO of the death — call the ATO deceased estate line or have your tax agent do it
2. Lodge the date-of-death individual return under the existing TFN
3. Apply for a Trust TFN for the estate
4. Open a dedicated estate bank account and direct all post-death income there
5. Lodge annual Trust Tax Returns until the estate is fully distributed
6. Distribute assets before the 3-year deadline if possible

If the estate involves superannuation paid to non-dependants, complex CGT calculations, or assets held in a company or trust structure, engage a tax professional. The ATO's penalty regime for deceased estates is identical to individual taxpayers — ignorance is not a defence.

The Queensland Probate Process Guide includes a complete taxation chapter with ATO notification templates and a deadline tracker to keep you on schedule.

See more Queensland guides →