So you have the honour of being appointed executor (or "personal representative") of an estate. There are arrangements to be made, lawyers to meet with and beneficiaries asking "are we there yet?"
Then there are taxes. We all know the ATO lets no one go, but what are your responsibilities? What happens if the deceased lodged an incorrect return a few years ago and the ATO re-assesses it now? Can the executor be personally liable for unpaid tax of the estate? Surely, if a tax bill comes up the beneficiaries are liable?
Michael Flynn wrote an excellent article published by the Law Institute Journal that clearly explains all:
"Despite the implication in the ATO Receivables Policy that the ATO may be able to recover outstanding tax from personal representatives who appropriately administer a deceased estate, High Court authority suggests that:
- the ATO can only recover tax debts from estate assets; and
- after the personal representative has distributed all the estate assets without notice of any tax debts, the ATO is unable to recover outstanding tax from either the personal representatives or the beneficiaries.
Therefore, provided a personal representative makes reasonable inquiries about the deceased's tax position, pays all tax liabilities that arise in the course of the administration, and publishes the usual advertisements notifying potential creditors of the winding-up of the estate, the ATO will not have any recourse against the personal representative in respect of tax liabilities that emerge after the estate's assets have been distributed to the beneficiaries."
Further, Flynn explains:
"the case of DCT (NSW) v Brown the High Court held that the Commissioner is unable to pursue a beneficiary for a tax liability that arises as a result of assessments issued after the personal representative has completed the administration of the estate."