Income in Respect of a Decedent (IRD): 2026 Australian Guide

IRD is income that a deceased person was entitled to, but which was not paid to them before they died. Unlike assets such as property or shares, IRD items have not yet been taxed. When these amounts are eventually paid, the tax liability shifts to the estate or the beneficiary who receives them.

Common examples of IRD in Australia include:

• Salary, wages, commissions, or bonuses earned before death but not yet paid
• Investment income, such as interest or dividends declared but unpaid
• Rental income that was due but not received
• Certain superannuation death benefits, depending on the recipient and the circumstances
• Business income that was earned but not yet received
• Digital royalties or payments from online platforms

As estates become more complex, IRD can arise from a wider range of sources, including digital assets and overseas investments.

IRD is treated as assessable income for tax purposes. The timing and responsibility for declaring this income depend on who receives it:

• If the estate receives the IRD: The executor or administrator must include the income in the estate’s trust tax return for the year it is received.
• If a beneficiary receives the IRD directly: The beneficiary must declare the income in their own tax return for the year they receive it.

This means IRD is not taxed in the hands of the deceased, but rather in the hands of the recipient—either the estate or the beneficiary. The applicable tax rate will depend on the recipient’s circumstances.

Superannuation Death Benefits and IRD

Superannuation death benefits can include IRD, particularly when the payment contains taxable components. Whether tax is payable depends on the relationship between the deceased and the recipient. Generally, death benefits paid to dependants may be tax-free, while non-dependants (such as adult children) may need to pay tax on the taxable component, which can include IRD.

Foreign Assets and IRD

If the deceased held overseas assets, any IRD arising from those assets—such as foreign bank interest or rental income—may still be subject to Australian tax. In some cases, foreign tax credits may be available to offset tax paid overseas, but Australian residents must declare worldwide income, including IRD from foreign sources.

Digital Assets and IRD

With the rise of digital assets, IRD can also include income from online royalties, digital wallets, or cryptocurrencies that were earned but not received before death. Executors and beneficiaries should be aware that these sources are increasingly scrutinised and must be reported appropriately.

Managing IRD can be complex, but there are steps you can take to make the process smoother and reduce the risk of errors:

1. Keep Detailed Records

Maintain clear records of all income that was due to the deceased but not received before their death. This includes salary, investment income, rental payments, business income, and any digital or foreign income streams.

2. Identify IRD Items Early

Review the deceased’s financial affairs carefully to identify any IRD items. This may involve checking bank statements, investment accounts, employment records, and correspondence from financial institutions.

3. Communicate with Beneficiaries

Executors should inform beneficiaries about any IRD that may affect their inheritance. Beneficiaries who receive IRD directly need to understand their tax obligations and the importance of declaring this income in their tax returns.

4. Understand Superannuation Rules

Check whether any superannuation death benefits are taxable as IRD and clarify who the recipients are. The tax treatment can vary depending on whether the recipient is a dependant or non-dependant.

5. Don’t Overlook Digital and Overseas Assets

Digital wallets, online accounts, and foreign investments can all give rise to IRD. Make sure these are included in the estate’s inventory and that any income earned but not received is properly reported.

6. Plan Estate Distributions Carefully

Where possible, consider the timing and structure of distributions to minimise tax. In some cases, distributing IRD through the estate may result in a lower overall tax rate, depending on the circumstances. Seek professional advice if you are unsure.

7. Meet Reporting Deadlines

The Australian Taxation Office (ATO) has increased its focus on estate compliance, including IRD. Executors should be aware of reporting deadlines and ensure all required tax returns are lodged on time to avoid penalties.

Imagine an executor managing an estate that includes unpaid salary, declared but unpaid dividends, and rental income owed by tenants. All these amounts are considered IRD. The executor must include these in the estate’s trust tax return for the year they are received. If any of these amounts are paid directly to beneficiaries, those individuals must declare the income in their own tax returns. Failing to report IRD correctly can lead to compliance issues and potential penalties.

IRD is not just a technical detail—it can have a significant impact on the final value of an inheritance and the tax obligations of both estates and beneficiaries. As estate planning and asset portfolios become more complex, and with the ATO paying closer attention to compliance, being proactive about IRD is essential.

Whether you are an executor, beneficiary, or simply planning for the future, understanding IRD can help you avoid unexpected tax bills and ensure the estate is managed efficiently. If you are unsure about your obligations, consider seeking professional advice or consulting resources such as our finance section for more information.