Who Pays Tax on Estate Income in Australia?

Three taxpayers

Income connected with a death is taxed in three places. The date-of-death return covers income the deceased derived from 1 July to the date of death. The deceased estate is a trust for tax purposes from the day after death, with the executor as trustee. A beneficiary is taxed on estate income only if they are presently entitled to it.

The estate is a resident trust estate for an income year if a trustee was an Australian resident, or its central management and control was in Australia, at any time in that year (section 95(2) of the Income Tax Assessment Act 1936 (Cth)). An executor living overseas can therefore affect how the estate is taxed.

Present entitlement and IT 2622

Whether the executor or a beneficiary is taxed depends on whether a beneficiary is presently entitled to estate income at 30 June. Taxation Ruling IT 2622 follows the High Court in FCT v Whiting (1943) 68 CLR 199: until debts, expenses and gifts are paid or provided for and the residue is ascertained, the income belongs to the executor, not the residuary beneficiaries (IT 2622 paras 9–13).

There is one practical exception. If, part-way through administration, it is clear some income will not be needed and the executor actually pays it to (or for) a beneficiary, that beneficiary is presently entitled to the amount paid (IT 2622 para 14). Once the residue can be ascertained with certainty, residuary beneficiaries are presently entitled even if the estate is not wound up (paras 15–16).

Who is assessed and at what rate

• Section 97: a presently entitled beneficiary who is not under a legal disability includes their share of the estate's net income in their own return.
• Section 98: the executor is assessed on the share of a presently entitled beneficiary who is under a legal disability (for example, a minor) or is a non-resident.
• Section 99: the executor is assessed on net income to which no beneficiary is presently entitled — the usual position during administration.
• Section 99A: the top rate. For an estate arising under a Will or intestacy, it does not apply if the Commissioner considers that unreasonable (section 99A(2)(a)), having regard to how property came to the estate, including property transferred or lent to it after death (section 99A(3)).

First three income years. Under the Income Tax Rates Act 1986 (Cth) section 12(6) and Schedule 10 Part I clause 1(b), section 99 income of the estate of a person who died less than three years before the end of the income year is taxed at ordinary individual rates, including the full tax-free threshold ($18,200). The ATO describes this as the first three income years and says it applies unless the estate's circumstances change materially. The estate gets no tax offsets (such as the low income tax offset) and pays no Medicare levy.

Fourth income year onwards (Schedule 10 Part I clause 2), for 2024–25 and 2025–26:

These figures come from the ATO's deceased estate rates page (updated 4 June 2026), which covered years up to 2025–26 at the time of review. From 1 July 2026 the legislated ordinary individual rates change — the 16% rate falls to 15% for 2026–27 (and to 14% from 1 July 2027): Income Tax Rates Act 1986 Schedule 7 Part I. Because Schedule 10 Part I clause 2 applies the Schedule 7 table for the relevant year of income, the statutory fourth-year marginal rates for 2026–27 are 15%, 30%, 37% and 45%, with the same $45,000, $135,000 and $190,000 thresholds. The ATO had not published a 2026–27 deceased-estate table (including its $416 nil band and 50% shade-in thresholds) at the time of review, so check the current ATO figures before relying on them for 2026–27.

Trust returns, TFN and ABN

The first income year of the estate starts the day after death and ends on the next 30 June. In each of the first three income years, a trust return is required if:

• the estate's net income is more than the individual tax-free threshold;
• a beneficiary is presently entitled to any estate income at the end of the year; or
• a beneficiary is not an Australian resident for tax purposes.

From the fourth income year, a return is required if the estate earns any income, including capital gains. A trust TFN is needed only if a return is required, and an ABN only if the estate carries on a business. Both are applied for through the Australian Business Register (a paper TFN form, NAT 3236, is also available). The deceased's own date-of-death return is separate.

Interest, dividends, rent and streaming

Before-or-after-death questions follow the rule for each type of income, not the date money reaches a bank account.

• Interest is generally derived by an individual when it is paid or credited. Interest credited before death belongs in the date-of-death return; interest credited after death is generally estate income.
• Dividends are assessable when paid or credited, so a dividend paid after death is generally estate income even if it was declared earlier.
• Rent received for the period after death is estate income, and related property expenses are deductible on ordinary principles.
• Distributions from other trusts depend on when the entitlement arose: an entitlement at 30 June before death belongs to the deceased.

Franked dividends and capital gains are dealt with under Subdivision 207-B and Subdivision 115-C of the Income Tax Assessment Act 1997 (Cth) rather than the ordinary Division 6 calculation. Unless a beneficiary is made specifically entitled to them within the statutory time limits, they are shared in the same proportions as the estate's other income, and franking credits follow that share. Franking credits are also subject to the holding-period rules.

Deductions and losses

The estate can deduct expenses incurred in earning its income — for example, rental property costs or interest on money borrowed to keep an income-producing asset. Fees for preparing the estate's tax returns and tax advice are deductible under section 25-5 of the Income Tax Assessment Act 1997. Funeral costs, probate fees and general administration costs are not incurred in earning income and are generally not deductible.

Losses do not pass on death. Capital losses can be used in the date-of-death return, but any unapplied net capital loss lapses: it cannot be used by the estate or a beneficiary (ATO TD 95/47). The deceased's carried-forward revenue (ordinary) tax losses are treated the same way: they can be deducted only in the deceased's own returns, including the date-of-death return, and any unused balance lapses at death — the estate cannot use them because it is a separate taxpayer (ATO date-of-death return guidance). These are distinct from deductions claimed in the date-of-death return itself, and from losses the estate itself makes after death, which stay with the estate and do not pass to beneficiaries.

Capital gains tax

No CGT on death or ordinary inheritance. When an asset devolves to the executor or passes to a beneficiary, the beneficiary or executor is treated as acquiring it on the day of death (section 128-15(2)), and any gain or loss the executor makes when it passes to a beneficiary is disregarded (section 128-15(3)). This is not a rollover election; it is a rule that applies automatically. For the CGT discount, the deceased's ownership period counts (section 115-30).

Cost base (section 128-15(4)): generally the deceased's cost base for post-20 September 1985 assets; market value at death for pre-CGT assets and for a main residence not used to produce income just before death (if the deceased was not an excluded foreign resident). Special rules apply to foreign residents' non-Australian assets.

CGT event K3 (section 104-215) taxes the gain in the date-of-death return when a post-CGT asset passes to a tax-exempt entity, a complying super fund trustee, or a foreign resident (for a foreign resident, only if the deceased was an Australian resident and the asset is not taxable Australian property). Testamentary gifts to deductible gift recipients can be disregarded (section 118-60).

The deceased's home (section 118-195) can be fully exempt if the deceased acquired it before 20 September 1985, or it was their main residence and not used to produce income just before death, and either:

• the executor or beneficiary's interest ends within two years of death (the Commissioner may extend this; PCG 2019/5 sets out when the ATO accepts an extension of up to 18 months without further review); or
• from death until disposal it was the main residence of the deceased's spouse (unless permanently separated), a person with a right to occupy it under the Will, or the beneficiary who sells it.

If the executor sells an asset, the gain or loss is calculated using the inherited cost base and forms part of the estate's income.

Superannuation paid to the estate

Where a super death benefit is paid to the estate, section 302-10 of the Income Tax Assessment Act 1997 treats it as income to which no beneficiary is presently entitled, so the executor is assessed rather than the beneficiaries. The tax depends on who benefits:

• to the extent the deceased's death benefits dependants (for example, a spouse or minor child) benefit, it is taxed as if paid to a dependant — a lump sum is tax-free;
• to the extent non-dependants (for example, adult independent children) benefit, the taxable component is taxed at no more than 15% (taxed element) or 30% (untaxed element) (section 302-145). The tax-free component remains tax-free.

Where both groups benefit, the executor apportions the benefit and should keep records showing how it was allocated.

Testamentary trusts

If the Will creates a testamentary trust, section 102AG of the Income Tax Assessment Act 1936 treats income from property that came from the deceased's estate as "excepted trust income", so minors are taxed at adult rates rather than the higher Division 6AA rates. For assets acquired or transferred to the trust on or after 1 July 2019, the concession is limited to property that came from the estate (or proceeds of it). The testamentary trust is a separate taxpayer once it begins.

Executor liability and safe distribution

Executors face two separate tax exposures.

The deceased's own tax. Where probate or letters of administration are granted, section 260-140 of Schedule 1 to the Taxation Administration Act 1953 (Cth) requires the executor to lodge the deceased's outstanding returns and pay the deceased's outstanding tax from the estate. An executor who distributes despite knowing of a claim risks personal liability. Under PCG 2018/4, the ATO will not pursue the executor personally for the deceased's liabilities if the estate is "less complex" and the executor lodges all outstanding returns (or advises none are needed) and the ATO does not give notice of review within six months. A less complex estate must meet all of these conditions:

• in the four years before death, the deceased did not carry on a business, was not assessed on discretionary trust income and was not an SMSF member;
• the assets are only listed shares or widely held interests, super death benefits, Australian real property, cash, cash investments and personal items;
• total market value at death was less than $10 million; and
• no assets pass to a foreign resident, a complying super fund trustee or a tax-exempt entity (other than certain testamentary gifts).

PCG 2018/4 does not apply if probate or administration has not been granted (sections 260-145 and 260-150 apply instead).

The estate's own tax. Tax on income the estate earns is assessed to the executor in a representative capacity under section 254 of the Income Tax Assessment Act 1936. An executor who fails to retain enough from estate money to pay that tax can become personally liable. The High Court has held that the statutory duty to retain arises only once tax has been assessed or is taken to have been assessed (FCT v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48 at [1]). Prudent executors still hold back enough for expected tax before final distribution. PCG 2018/4 does not cover this tax.

See also can an executor distribute before tax is finalised.

Worked example

Maria dies on 5 April 2026. Her estate holds a rental property and listed shares, and her Will leaves everything equally to her two adult children, both Australian residents.

• Date-of-death return (1 July 2025 – 5 April 2026): Maria's salary, rent and dividends received up to her death.
• Year 1 (6 April – 30 June 2026): the estate receives $6,000 rent (net). Debts are not yet known, so no beneficiary is presently entitled. Net income is below the tax-free threshold and there is no other trigger, so no trust return is required.
• Year 2 (2026–27): net rent of $20,000 and franked dividends. In March 2027, with all debts and expenses provided for, the executor pays $5,000 of income to each child. Each child is presently entitled to the amount actually paid and includes their proportionate share of net income (including franking credits) in their own return. The executor is assessed under section 99 on the rest at individual rates with the tax-free threshold. A trust return is required because beneficiaries are presently entitled.
• Year 3 (2027–28): the residue is ascertained in October 2027. From then, the children are presently entitled to the estate income and are taxed on it under section 97.
• If administration had continued into year 4 (2028–29) with no present entitlement, the fourth-year scale would apply.

Had the executor merely recorded an intention to pay in year 2, without paying and while debts were uncertain, the children would not have been presently entitled.

When the estate ends

The estate is generally treated as ending when administration is complete and the executor holds remaining assets in another capacity — for example, as trustee of a testamentary trust or as bare trustee for a beneficiary. Record that point in the estate accounts and tell the ATO when no further returns are required. Specialist advice is prudent where the estate holds a business, a private company or trust interest, an SMSF, foreign assets or significant CGT assets.

Frequently Asked Questions

How Parke Lawyers can help

Our Probate & Estate Administration team advises executors and beneficiaries on estate tax issues — present entitlement, interim distributions, CGT on estate assets, super paid to the estate and safe distribution — working with the estate's accountant and, where needed, tax counsel.

Sources and further reading

• Income Tax Assessment Act 1936 (Cth) (opens in a new tab) — ss 95(2), 97, 98, 99, 99A(2)–(3), 102AG, 254
• Income Tax Assessment Act 1997 (Cth) (opens in a new tab) — ss 25-5, 104-215, 115-30, 118-60, 118-195, 128-15, 302-10, 302-145; Subdivs 115-C, 207-B
• Income Tax Rates Act 1986 (Cth) (opens in a new tab) — s 12(6) and Schedule 10 Part I
• Taxation Administration Act 1953 (Cth) (opens in a new tab) — Schedule 1 ss 260-140 to 260-150
• Taxation Ruling IT 2622 (opens in a new tab) — present entitlement during administration
• PCG 2018/4 (opens in a new tab) — finalising deceased estates (final guideline)
• PCG 2019/5 (opens in a new tab) — extending the two-year period for inherited dwellings
• TD 95/47 (opens in a new tab) — deceased's unapplied net capital losses
• ATO: Tax rates – deceased estate (opens in a new tab)
• ATO: Doing a final tax return for the deceased person (opens in a new tab) — losses of the deceased lapse if unused
• ATO: Registering a deceased estate trust and lodging returns (opens in a new tab)
• FCT v Australian Building Systems Pty Ltd (in liq) [2015] HCA 48 (opens in a new tab)