Schedule 2 of 6 · The estate’s own returns

Trust tax returns for a deceased estate

After a death, the income the person’s assets go on earning, such as rent or share dividends, is the estate’s income, and the estate may need a trust tax return for each year until it is finalised. For its first three income years a return is needed only in certain cases; from the fourth year on, any income at all means a return.

General information, not tax advice. The ATO’s pages on trust tax returns for a deceased estate are the official reference, and a registered tax agent can tell you how they apply to one estate.

2.1A second taxpayer

For tax, a death leaves two sets of papers. The person’s own date of death return closes at the day they died. The estate’s first income year begins the next day, and when it has to lodge, the estate is treated as a trust: its trustee, usually the legal personal representative, reports what it earns. There are no inheritance taxes in Australia; these returns are about income.

A testamentary trust is something else again. It is a separate trust set up by the will, it goes on after the estate is finalised, and it has its own returns.

2.2When a return is needed

Triggers for a deceased estate trust return, by income year
Income years	A return is needed when	Worth knowing
Years 1 to 3	The estate’s net income is above the tax-free threshold for individuals; or a beneficiary is presently entitled to some of its income at the end of the year; or a beneficiary is not an Australian tax resident.	If no more returns are due after year 3, the ATO asks to be told.
Year 4 and later	The estate earns any income, capital gains included.	The concessional rates of the first three years no longer apply.
Any year	Not required, but allowed.	An estate can lodge when it doesn’t have to, for example to claim back franking credits on dividends.

2.3How the income years run

The estate’s first income year begins the day after the death and ends on the next 30 June. Each later year is an ordinary financial year. Counting them matters, because the third year is the last one taxed at the concessional rate.

Worked example, with made-up figures

A person dies on 3 August 2025. Their estate earns rent from a unit while it is being administered.

Year 1, 4 August 2025 to 30 June 2026. Net income is $6,000. That is below the tax-free threshold, no beneficiary is presently entitled to income and all are Australian residents, so no return is required. Under the concessional rate, an estate with $18,200 or less of taxable income in one of its first three years pays no tax.

Year 2, 1 July 2026 to 30 June 2027. Net income is $24,000, above the threshold, so a return is required, taxed at the concessional rate.

Year 3, 1 July 2027 to 30 June 2028. Net income falls to $4,000, but one beneficiary now lives overseas and is not an Australian tax resident, so a return is required again.

Year 4, from 1 July 2028. If the unit is still in the estate and earns anything, a return is required, at the rates for later years.

2.4A tax file number for the estate

An estate that has to lodge needs its own trust tax file number, separate from the person’s. In order, the ATO describes it like this:

Apply through the Australian Business Register’s online application, choosing “TFN only” if the estate isn’t running a business. A paper form, TFN application for a deceased estate (NAT 3236), does the same job.
If the estate is carrying on the person’s business so it can be wound up, apply for a new ABN at the same time. The business’s existing ABN can’t be used, and only the authorised legal personal representative or their representative can apply for one.
Choose the deceased estate option only for the estate itself, never for a testamentary trust.
Lodge on the paper Trust tax return (NAT 0660), using the ATO’s Appendix 8 instructions for trustees of deceased estates, or have a tax agent appointed by the authorised legal personal representative lodge it online.

2.5Who pays the tax, stage by stage

Whether the trustee or a beneficiary is taxed on the estate’s income turns on “present entitlement”. Generally a beneficiary is presently entitled only once the estate is fully administered, so for most of the administration the tax falls to the trustee.

Who is taxed on the estate’s net income at each stage
Stage	Usually taxed	Exceptions
Before probate or letters of administration	The trustee, in the trust return. No beneficiary is presently entitled yet.	None.
After the grant, before the final distribution	Still generally the trustee.	An interim distribution of income, made only when the rest of the estate clearly covers what it owes, makes that beneficiary presently entitled to it.
Administration complete	Beneficiaries, in their own returns, for income they are presently entitled to.	For a beneficiary who is a non-resident, or under a legal disability, the trustee reports their share and pays on their behalf.

A beneficiary is under a legal disability, in the ATO’s sense, if they are under 18 on 30 June of the income year, bankrupt, or declared legally incapable because of a mental condition. Their share is taxed at the general individual rates, not the higher rates that usually apply to a minor’s unearned income, and the Medicare levy applies. A non-resident beneficiary’s share is taxed at non-resident rates, with no Medicare levy.

Two details catch people out. Super death benefits and death benefit termination payments paid to the estate are income no beneficiary is presently entitled to. And in the year administration finishes, income can be split between the trustee and the beneficiaries at the day it was complete, but only on request and with evidence of when it was actually earned, never by simply dividing the year by days.

2.6The rates

For the first three income years, the estate can ask, with its first return, for a concessional rate: the same as the individual income tax rates, with the full tax-free threshold. The estate gets no tax offsets, such as the low-income tax offset, and pays no Medicare levy. The concession can’t be stretched past three years, and material changes in the estate’s circumstances can end it sooner.

From the fourth year, a separate scale applies. In the ATO’s table for 2024–25 to 2025–26, there is no tax up to $416; once taxable income passes $611, the whole amount from the first dollar is taxed at 16% up to $45,000, and higher bands follow. Those figures are as at October 2026; the ATO’s deceased estate tax rates page has the full scale and the earlier years.

When the estate is near its end, the tax checklist for the final distribution is in when an estate can be finalised.