Deceased Estates with Overseas Connections: Key Tax Issues for Executors and Beneficiaries

Deceased estates are complex at the best of times. When executors or beneficiaries are overseas, the Australian tax rules can add unexpected complications. If you’re administering or inheriting from an estate that has foreign links, here are the key issues to be aware of.

1. Non-Resident Executors (Legal Personal Representatives)

An executor (or legal personal representative, LPR) is responsible for collecting estate assets, lodging tax returns, and paying tax on behalf of the estate.

• Estate residency: The executor’s own residency does not automatically make the estate non-resident. If the deceased was an Australian tax resident at death, tax authorities usually treat the estate as resident for tax purposes.
• FRCGW obligations: From 1 January 2025, the Foreign Resident Capital Gains Withholding (FRCGW) rules apply to all sales of Australian property (no $750,000 threshold) at a rate of 15%. Purchasers must withhold 15% of the sale price when the estate sells real property, unless they obtain a clearance certificate. For a non-resident executor, this process is harder to manage and requires planning.
• Practical hurdles: Foreign executors often face delays opening estate bank accounts, navigating ATO ID checks, and dealing with registries. In practice, appointing a local agent can smooth the process.

2. Non-Resident Beneficiaries

When a beneficiary is non-resident, different tax treatments apply:

• Australian-sourced income: They are still taxable on distributions of Australian-sourced income from the estate.
• Capital gains:
  • Non-residents do not receive the CGT discount and cannot claim the main residence exemption on property.
  • Transferring assets (such as shares) directly to a non-resident beneficiary may trigger CGT Event K3. The estate must pay this tax before the transfer, not the non-resident beneficiary.
  • This can create inequities: the estate bears the tax liability, reducing the residual available for other beneficiaries. If the will is silent, Australian resident beneficiaries may effectively subsidise the tax cost of gifts to non-residents.
• Withholding rules: Executors must apply non-resident withholding tax to estate income distributions. From 1 July 2024, the non-resident tax rate starts at 30% (no longer 32.5%).

3. CGT Event K3 and Estate Planning Pitfalls

CGT Event K3 is often overlooked in will planning. It applies where:

• A resident estate transfers an asset (e.g. property, shares) to a non-resident beneficiary, and
• The capital gain would not otherwise be taxed in Australia (because the beneficiary is non-resident).

The problem: The tax is payable by the estate on transfer. If the will does not specify who should bear this cost, it may come out of the residuary estate, reducing what other beneficiaries receive.

A practical solution: A well-drafted will should give the executor flexibility:

• The ability to sell the asset first, pay CGT, and then distribute net proceeds; or
• Clear directions on who bears the tax burden (e.g. attributing CGT to the specific gift, not the residuary beneficiaries).

This avoids unfair outcomes where resident beneficiaries are disadvantaged by gifts made to non-residents.

4. Double Taxation Risks

• Beneficiaries may face taxation in both Australia and their country of residence.
• Double Tax Agreements (DTAs) sometimes help, but coverage of estate distributions is patchy.
• Careful planning and foreign tax credit claims are essential to reduce the risk of paying tax twice.

Key Takeaways: Managing Deceased Estates with International Connections

• Non-resident executors (LPRs) face FRCGW issues when selling Australian property, now at 15% with no threshold.
• Non-resident beneficiaries lose CGT concessions and may trigger CGT Event K3, which can shift the tax burden to the rest of the estate.
• Flexible will drafting is critical — it should allow the executor to sell assets and clearly specify who bears CGT liabilities.
• Executors must apply the correct withholding rules when distributing to non-residents (starting at 30%).
• Double taxation remains a live risk and should be factored in early.

Overseas executors and beneficiaries create complex challenges for Australian estates. The interaction of CGT Event K3, FRCGW, and residency rules means that wills should be drafted carefully and executors should seek early advice.

If you are a non-resident executor or beneficiary, or you are drafting a will that may involve overseas heirs, professional tax guidance is essential to avoid unexpected tax bills and disputes.

Contact Us

If managing your financial affairs across borders is starting to feel overwhelming, you’re definitely not alone. It’s a complex space, and having the right support can make all the difference. At Atlas Wealth Group, we specialise in supporting Australian expats with cross-border tax planning, superannuation, mortgages and wealth management. Contact us to arrange a consultation with a qualified adviser who specialises in Australian expat financial planning to get personalised guidance tailored to your circumstances.

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Disclaimer: This article is intended for informational purposes only and does not constitute legal or financial advice. Individuals should consult licensed professionals when seeking guidance regarding their financial circumstances.