In short

After death, an executor must lodge two distinct kinds of return: the deceased's date-of-death individual return covering income up to the date of death, and separate deceased estate trust returns covering income earned by estate assets afterwards, under the estate's own tax file number. The estate gets ordinary individual tax rates with the full tax-free threshold only for its first three income years.

When an Australian dies, their tax affairs do not simply stop. The legal personal representative (LPR) — the executor named in the will, or an administrator appointed where there is no will — becomes responsible for finalising the deceased's tax position and for the tax affairs of the estate during administration. That involves two distinct kinds of return, commonly confused: the date-of-death return (the deceased's final individual return, covering income from the start of the income year to the date of death) and the deceased estate trust returns (lodged by the estate for income earned by the estate's assets from the date of death until the estate is fully wound up). The estate is treated as a trust for tax purposes, with one especially valuable concession — for its first three income years it is generally taxed at ordinary individual rates with the full tax-free threshold. For retirees acting as executors — and for those planning their own estates to ease the burden on a future executor — understanding these obligations matters.

The fundamental concept is that the deceased and the estate are two separate taxpayers. Up to the date of death, income belongs to the deceased and is reported in the date-of-death return. From the date of death, the assets are held by the LPR in a trust-like capacity, and income they earn belongs to the estate and is reported in the estate's trust returns. This two-taxpayer structure is the source of most executor confusion — many people don't realise a final individual return is required, try to put post-death income on the deceased's return, or fail to register the estate as a separate taxpayer.

The date-of-death return is the deceased's final individual tax return, covering 1 July of the year of death to the date of death — a part-year period reporting the income earned in it (salary, investment income, pension and super income, and any capital gains realised before death), and claiming the deductions and offsets the deceased was entitled to, including the Seniors and Pensioners Tax Offset where applicable. Importantly, the deceased keeps the full tax-free threshold for that part-year — it is not pro-rated, and the Medicare levy applies as normal. The LPR signs and lodges this return on the deceased's behalf; any refund is an asset of the estate and any tax owed is a debt of the estate. Lodging it promptly finalises the deceased's lifetime tax position and clears the way for orderly administration.

The estate trust returns are lodged for each income year of administration. From the date of death the estate is a "deceased estate" — a particular kind of trust — needing its own Tax File Number, separate from the deceased's, which executors frequently forget to arrange early. Each return reports the income the estate's assets earn after death — rent, dividends, interest and the like. Where the estate distributes income to (or applies it for) a beneficiary who is presently entitled to it, the beneficiary includes that income in their own return and the estate is not taxed on it; where the estate retains or accumulates income, the estate (the trustee) is taxed on it.

The three-year concession is the most important planning feature. For the income year of death and the following two income years, the estate's retained income is taxed at ordinary individual rates with the full $18,200 tax-free threshold — in effect a "second" tax-free threshold during administration. This concessional treatment reflects the ATO assessing the trustee at individual rates (rather than the penal trustee rate that can otherwise apply to accumulated trust income), and it holds for the first three years unless the estate's circumstances change materially. From the fourth income year onwards the concession is lost: the estate no longer gets the individual tax-free threshold, so income is taxed from a much lower starting point and long-running estates face materially higher effective rates. Two other points worth knowing: a deceased estate does not get tax offsets such as the low income tax offset, and it pays no Medicare levy. The practical message for executors is to aim to finalise administration within three years — estates that drag on past that point, through family disputes, hard-to-sell assets or simple inertia, forfeit a valuable concession.

The CGT consequences during administration turn on whether the LPR transfers or sells assets. Transferring an asset in specie to a beneficiary is generally a rollover — no CGT event, with the beneficiary inheriting the deceased's cost base (or market value at death for pre-CGT assets and for a main residence that was not income-producing). Selling an estate asset — to fund cash gifts, settle debts, or dispose of something no beneficiary wants — triggers a CGT event in the estate, calculated on the deceased's cost base, though the estate can use the 50% CGT discount (the deceased's ownership period carries through). The family home is a special case: the LPR can sell it CGT-free within two years of death under the main residence exemption. The planning principle is that transferring assets to beneficiaries keeps the rollover going and defers CGT, while LPR sales crystallise it in the estate.

The superannuation interaction is often misunderstood. A super death benefit paid directly to a dependant — via a valid binding death benefit nomination or a reversionary pension — does not pass through the estate and is not estate income; it goes straight to the beneficiary. Where super is instead paid to the LPR (no valid nomination, or the nomination names the estate), it is received by the estate, and the tax depends on whether the ultimate beneficiaries are death benefits dependants. A well-structured estate generally keeps super out of the estate through proper nominations, simplifying both the estate's tax and the administration.

What do worked planning examples show?

These two cases show how deceased estate tax returns play out in practice. Illustrative only — not personal advice — using FY25-26 rules.

Case 1 — Susan, 64, executor of her late mother's estate. Her mother died in November 2025. The estate comprises the family home (about $900,000), an investment property earning about $30,000 a year in rent (about $650,000), and a $400,000 share portfolio earning about $20,000 a year in dividends. On these facts Susan has a clear sequence. She lodges the date-of-death return covering her mother's income from 1 July 2025 to the date of death in November — pension income plus part-year rent and dividends — with the full tax-free threshold. She registers the estate for its own TFN as a deceased estate trust, and lodges estate trust returns for 2025-26 (November 2025 to June 2026) and each year after until the estate is wound up. The estate's roughly $50,000 a year of rent and dividends is taxed at individual rates with the tax-free threshold for the first three years. On these facts the rational plan is to aim to finalise within three years to keep the concession, to sell the family home within two years of death (by about November 2027) to capture the main residence exemption, and to weigh transferring the investment property and shares to the beneficiaries in specie (rollover, no immediate CGT) against selling them in the estate (a CGT event) — engaging an accountant who handles deceased estate returns.

Case 2 — Tom, 78, planning his own estate, with a complex asset base: three investment properties, a large multi-holding share portfolio, a small business interest and various managed funds. His intended executor is his daughter, who has no financial background. On these facts the administration would be a heavy burden on his daughter. The rational planning steps are to simplify the asset base where he can (consolidating managed-fund holdings, perhaps selling one or two properties to cut complexity), to keep a comprehensive "death file" of asset cost bases, acquisition dates and income sources that the executor can rely on, to consider a professional co-executor or at least pre-arranging an accountant, to brief his daughter on what administration involves, and to make sure his super carries clear binding or reversionary nominations so it bypasses the estate. For ongoing income-producing assets he might also weigh a testamentary trust as a better long-term structure than leaving them in an estate past the three-year concession. The point is that estate complexity is a cost borne by the executor — and simplification and documentation beforehand are real gifts to them.

For retirees in either role — executor now, or planning their own estate — the tax obligations of administration are significant and often underestimated. The advice work is to keep the two-return structure clear (date-of-death return plus estate trust returns), register the estate for its own TFN, lodge the final return promptly, track estate income, aim to finalise within the three-year concessional window, analyse the CGT consequences before any LPR sale, and — for estate planners — simplify and document to ease the executor's load. Done well, administration protects the estate's value and honours the deceased's intentions; done poorly, it erodes value through lost concessions, unnecessary tax, and prolonged stress.

Sources

Key takeaways

  • The deceased and the estate are two separate taxpayers — the date-of-death return covers the deceased's income up to death, and separate estate trust returns cover income the estate's assets earn afterwards.
  • The deceased's final date-of-death return gets the full, non-pro-rated tax-free threshold for that part year.
  • The estate needs its own Tax File Number, separate from the deceased's, which many executors forget to arrange early.
  • The estate gets ordinary individual tax rates with the full tax-free threshold for its first three income years only — from the fourth year onwards, that concession is lost.
  • Transferring an asset to a beneficiary in specie is generally a CGT rollover with no immediate tax, while the executor selling an estate asset triggers a CGT event in the estate.

Frequently asked questions

How many tax returns does an executor need to lodge after someone dies?

At least two kinds. The date-of-death return covers the deceased's own income from 1 July up to the date of death. Separately, the estate needs its own deceased estate trust returns, covering income the estate's assets (like rental property or shares) earn from the date of death until administration is finished, under the estate's own Tax File Number.

Does a deceased estate get its own tax-free threshold?

Yes, but only for a limited time. For the income year of death and the following two income years, the estate's retained income is taxed at ordinary individual rates with the full tax-free threshold. From the fourth income year onwards, that concession is lost and income is taxed from a much lower starting point, so it's worth aiming to finalise administration within three years.

Does selling a house or shares from a deceased estate trigger capital gains tax?

It depends on what happens to the asset. Transferring it directly to a beneficiary is generally a CGT rollover with no immediate tax, and the beneficiary inherits the deceased's cost base. If the executor sells the asset instead — to raise cash or settle debts — that's a CGT event in the estate, though the estate can still use the 50% discount since the deceased's holding period carries through.

Does superannuation paid to a dependant form part of the deceased estate's taxable income?

Not if it's paid directly to a dependant through a valid binding death benefit nomination or a reversionary pension — that money bypasses the estate entirely and isn't estate income. It only becomes estate income if there's no valid nomination, or the nomination names the estate itself as the recipient.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.