Tax for bereavement and business continuity

The legal personal representative must lodge a final tax return for the deceased covering 1 July to the date of death, cancel the existing ABN, and deregister for GST within 21 days of business cessation. The deceased estate receives concessional individual tax rates (including the full $18,200 tax-free threshold) for its first three income years, after which standard trust rates apply. Super death benefits paid to tax dependants are entirely tax-free; benefits paid to non-dependants (such as adult children) are taxed at up to 32% on the taxable component.

Last reviewed: 27 May 2026

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When a sole trader, business partner, or assisting spouse dies, the surviving family faces tax deadlines layered on top of grief. The deceased's ABN must be cancelled, a final date-of-death tax return lodged, and GST deregistration completed within 21 days. If the estate continues earning income, the legal personal representative (LPR) must apply for a new ABN and TFN for the deceased estate as a trust. Getting the sequencing right in the first few months prevents compounding problems: missed BAS lodgements, undeclared super death benefits, and accidental trading on a dead ABN.

The reality this serves

Surviving spouses, adult children acting as executors, and business partners dealing with the tax and compliance aftermath of losing a self-employed person. Includes sole trader families where the deceased was the only ABN holder, partnerships where the death dissolves the business by default, and family businesses where the deceased spouse handled bookkeeping, BAS lodgement, or client-facing work. The cohort also covers executors managing ongoing estate income from rental properties, investments, or business wind-down.

The final date-of-death tax return

The LPR must lodge a final individual tax return for the deceased, covering 1 July to the date of death. This return is required if the deceased had tax withheld from income, earned above the $18,200 tax-free threshold, or had outstanding lodgement obligations. Mark the return 'DECEASED ESTATE', sign on behalf of the deceased, and indicate no further returns will be lodged under that TFN. All income earned up to the date of death is included: business trading profit, wages, interest, rental income, and any capital gains triggered by deemed disposal events. If the deceased operated a business, the final return captures trading income through the death date. Income earned by the business after death belongs to the estate and is reported on the estate's trust return.

The legal personal representative must lodge a final individual return for the deceased covering the period from 1 July to the date of death. (ITAA 1936 s 159; ATO deceased estate administration guide)

ABN cancellation and new ABN for the estate

The deceased's existing ABN cannot be used after death. If the estate will continue the business (even temporarily, during wind-down or sale), the LPR must apply for a new ABN and TFN for the deceased estate, which is treated as a trust. GST deregistration on the deceased's ABN must occur within 21 days of ceasing business activities. If the estate carries on a business, the new estate ABN may need its own GST registration (if turnover exceeds $75,000). The LPR notifies the ATO of their appointment as executor and determines whether ongoing trust returns are needed for estate income.

A deceased person's ABN ceases at death. If the estate continues business activities, a separate ABN and TFN must be obtained for the estate as a trust entity. (A New Tax System (Australian Business Number) Act 1999; ATO ABN cancellation guide)

Partnership dissolution on death of a partner

Under Australian partnership law, a partnership automatically dissolves when a partner dies unless a written partnership agreement provides otherwise. The ATO must be notified within 28 days. Without an agreement, the surviving partners must wind up the partnership, settle debts, finalise trading accounts, and value the deceased partner's interest for distribution to their estate. The executor does not automatically gain operational control of the partnership. The deceased partner's estate is entitled to their share of net partnership assets and final profit allocations. If the partnership agreement allows continuation, the surviving partners may negotiate purchase of the deceased's interest, potentially funded by buy-sell insurance.

A partnership dissolves on the death of a partner unless the partnership agreement expressly provides for continuation. (Partnership Act 1892 (NSW) s 33(1) (equivalent in each state); ITAA 1936 s 91)

Super death benefits: dependants versus non-dependants

The tax treatment of superannuation death benefits depends entirely on whether the recipient is a tax dependant of the deceased. Tax dependants include the spouse, children under 18, anyone financially dependent on the deceased, and anyone in an interdependency relationship. For tax dependants: lump sum death benefits are entirely tax-free regardless of the taxable or tax-free components. For non-dependants (typically adult children): the tax-free component is still tax-free, but the taxable component is taxed at up to 30% plus 2% Medicare levy. An untaxed element (from defined-benefit funds or super that has not been taxed at 15% in the fund) faces a higher maximum rate of 47%. The distinction catches many families off guard. An adult child inheriting a parent's super balance where the taxable component is $400,000 could face a tax bill of roughly $120,000 to $128,000.

Super death benefits paid to tax dependants are tax-free. Benefits paid to non-dependants are taxed on the taxable component at up to 32% (or 47% for untaxed elements). (ITAA 1997 Division 302; ITAA 1997 s 302-145 (non-dependant lump sum taxation))

Allowable expenses in context

Standard business deduction rules continue to apply during estate administration. Specific bereavement-context considerations: The LPR can claim deductions for expenses incurred in winding up the business or maintaining it during transition: accounting and legal fees for estate administration, costs of obtaining professional valuations for business assets, and ongoing lease or licence obligations that cannot be immediately terminated. Employee obligations continue during estate administration. Outstanding wages, accrued leave, SG contributions, and workers' compensation insurance must be maintained. Redundancy payments are deductible if employees are terminated as part of business wind-down. Buy-sell agreement execution costs are generally capital in nature and not deductible, but the insurance proceeds financing a buyout may be CGT-exempt for the original policy owner. Small business CGT concessions may apply to the sale of the deceased's business interest, including the 15-year exemption, 50% active asset reduction, and retirement exemption up to $500,000. NOT deductible: funeral costs (personal), probate court fees (estate administration, not business), personal grief counselling.

Worked example

Megan — Rockhampton, QLD

Executor and surviving spouse of sole trader landscaper (FY 2025-26)

Megan's husband James passed away on 14 October 2025. James operated a sole trader landscaping business in Rockhampton (annual revenue roughly $95,000). Megan acts as LPR. James earned $28,000 in business profit from 1 July to 14 October 2025. His super balance at death was $310,000 ($40,000 tax-free component, $270,000 taxable component). Megan receives the entire super balance as his spouse. The estate continues to earn $4,200 in rental income from a commercial shed used by the business before it is sold.

FINAL RETURN (James, 1 Jul to 14 Oct 2025):
  Business profit: $28,000
  Tax-free threshold: $18,200
  Taxable: $9,800 at 16% = $1,568
  Medicare levy: $28,000 x 2% = $560
  Total tax on final return: $2,128

  SUPER DEATH BENEFIT:
  Megan is a tax dependant (spouse).
  Entire $310,000 lump sum: tax-free. No tax payable.
  If paid to James's adult daughter instead (non-dependant):
  Tax-free component $40,000: no tax.
  Taxable component $270,000 at 32%: $86,400 tax.
  The dependant vs non-dependant distinction saves $86,400 in this scenario.

  DECEASED ESTATE (trust return, Year 1):
  Rental income: $4,200
  Below $18,200 threshold (concessional individual rates apply in first 3 years).
  Estate tax: $0.

  COMPLIANCE STEPS:
  1. Cancel James's ABN (done within 28 days of death).
  2. Deregister GST within 21 days of ceasing business.
  3. Lodge final individual return marked DECEASED ESTATE.
  4. Apply for estate ABN and TFN (trust) for rental income.
  5. Lodge estate trust return by due date.

Support schemes

ATO hardship relief for deceased estates

Eligibility: Individuals and trustees of deceased estates where payment of tax debts would cause serious hardship (inability to meet basic necessities such as food, housing, medical care). Applies to income tax, Medicare levy, PAYG instalments, and FBT. Does not apply to GST or superannuation guarantee charges.

Centrelink Bereavement Payment

Eligibility: Surviving partner of a deceased social security recipient. Paid as a lump sum equal to what the couple would have received over 14 weeks, minus the new single rate.

Compassionate release of superannuation

Eligibility: Terminal illness (palliative care for you or a dependant) or funeral expenses for a dependant. Expenses must be unpaid or overdue (or paid by borrowed money still outstanding). No other financial means to pay. Evidence required: invoices, bills, or quotes. Applications made through myGov using the ATO early release form.

Key person insurance (revenue purpose)

Eligibility: Businesses that hold key person insurance policies to replace lost income or productivity when a key individual dies.

Frequently asked questions

How long does the deceased estate get the $18,200 tax-free threshold?+

For the first three income years after death. During this period, the estate is taxed at individual (concessional) rates, including the full $18,200 tax-free threshold, but without access to tax offsets or the Medicare levy. From the fourth income year onwards, the estate is taxed at standard trust rates: 47% on any income not distributed to beneficiaries. This creates a strong incentive to distribute estate income to beneficiaries or finalise administration within three years.

My partner died mid-year. Do I lodge their BAS for the current quarter?+

Yes. The LPR must lodge any outstanding BAS up to the date of death, covering GST collected and credits claimed during that period. If the business ceases at death, deregister for GST within 21 days and lodge a final BAS for the period up to cessation. If the estate continues business operations under a new estate ABN with GST registration, ongoing BAS obligations transfer to the estate entity.

Can the executor claim business losses from the final year against other estate income?+

Losses from the deceased's final return cannot be transferred to the estate or surviving family members. They remain quarantined on the deceased's final individual return. If the deceased had carried-forward business losses from prior years, those losses die with the individual and cannot be utilised by the estate. This is a common misconception that catches families who expected prior-year losses to offset estate income.

What happens to the business if there is no partnership agreement and a partner dies?+

The partnership automatically dissolves by operation of law. The surviving partners must wind up the partnership affairs: finalise trading accounts, value the deceased partner's interest, settle debts, and distribute the deceased's share to their estate. The ATO must be notified within 28 days. Without a continuation clause, the surviving partners cannot simply keep operating. This is why buy-sell agreements funded by life insurance are standard practice for partnerships with material asset values.

Last reviewed: 27 May 2026