What Does an Executor Do?
When making a Will, you may ask a family member or trusted friend to act as your executor. An executor manages the estate by applying for a grant of probate from the Supreme Court, collecting assets, paying debts and distributing the estate in accordance with the Will.
An executor may need to notify the Australian Taxation Office (ATO) that they are managing the estate. This enables the executor to deal with the deceased person’s tax affairs and confirm that the estate’s tax obligations are complete. If the proposed executor is a non-resident, the estate may face additional tax considerations.
Who Is a Non-Resident for Tax Purposes?
A non-resident is someone who is not an Australian resident for tax purposes. A person can be an Australian citizen or permanent resident but still be a non-resident for tax purposes. Someone who lives overseas, or may move abroad in the future, may therefore be treated as a non-resident.
How a Non-Resident Executor May Affect the Estate
A deceased estate is treated as a trust for tax purposes. Where an executor is a non-resident and the estate’s central management and control is outside Australia, the estate may be treated as a non-resident trust. This can change how income and capital gains are taxed, potentially reducing the estate’s value and affecting the intended beneficiaries.
Potential Tax Issues for a Non-Resident Estate
If a deceased estate is treated as a non-resident trust, different tax rules may apply. Depending on the circumstances, potential consequences include:
Income and Tax Rates
The tax-free threshold available to some deceased estates may not apply;
Higher tax rates may apply to income earned by estate assets after death;
Property Sales and Capital Gains Tax
The main residence exemption may be limited or unavailable when a home is sold, depending on the residency of the deceased and beneficiaries, the timing of the sale and other circumstances;
For taxable Australian property, access to the capital gains tax discount may be reduced or unavailable when the property is sold;
Withholding at Settlement
When Australian real estate is sold, foreign resident capital gains withholding may apply. The purchaser may be required to withhold part of the sale proceeds and pay it to the ATO at or before settlement.
Reducing the Risk When Choosing an Executor
Appointing an Australian resident as a co-executor may help the estate satisfy the resident trust test, depending on how the estate’s central management and control is exercised. Financial and tax advice should be obtained from a qualified accountant or tax specialist before making an appointment, as the consequences depend on the estate’s circumstances.
How W Legal Group Can Help
For assistance preparing a Will, contact W Legal Group at hello@wlegalgroup.com.au or (03) 9590 6180. If administering an estate involves a home title change or the sale of real estate, W Legal Group’s conveyancing lawyers in Melbourne can assist with the property process alongside independent tax advice.
