Inheriting wealth can be both a windfall and a headache, especially when tax rules come into play. For Australians navigating estates in 2025, ‘Income in Respect of a Decedent’ (IRD) is more than just a technical term—it’s a key concept that can affect the size of your inheritance and your next tax bill. Whether you’re an executor, beneficiary, or just estate-curious, understanding IRD has never been more important.
What Is Income in Respect of a Decedent (IRD)?
IRD refers to income that the deceased person was entitled to, but which wasn’t received before they passed away. Unlike assets such as property or shares, IRD items haven’t been taxed in the hands of the deceased. Instead, the tax liability transfers to the estate or the beneficiary who eventually receives the income.
Common examples of IRD in Australia include:
- Unpaid salary, commissions, or bonuses earned before death
- Accrued investment income, such as interest or dividends declared but not paid
- Outstanding rental income
- Superannuation death benefits (in certain circumstances)
In 2025, with estate sizes on the rise and more complex asset mixes, IRD is cropping up in a wider range of scenarios—from digital royalties to business income awaiting settlement.
2025 Updates: ATO Guidance and Policy Shifts
The Australian Taxation Office (ATO) has sharpened its focus on IRD in recent years, and 2025 brings further clarity for executors and beneficiaries. The latest ATO guidance highlights several important points:
- Tax Timing: IRD must be declared as assessable income in the year it is received by the estate or beneficiary—not the year the deceased earned it.
- Who Pays? If the income goes to the estate, the executor files a trust tax return. If it goes directly to a beneficiary, that beneficiary declares the income on their personal return.
- Superannuation Death Benefits: The 2025 rules maintain a distinction: benefits paid to dependants may be tax-free, but non-dependants (like adult children) could face tax on the taxable component, which often includes IRD.
- Foreign Assets: With more Australians inheriting offshore accounts or properties, the ATO’s 2025 rules clarify that IRD from overseas sources is still subject to Australian tax, though foreign tax credits may apply.
Executors now face stricter reporting deadlines, and digital assets (including crypto and online royalties) are being scrutinised more closely as IRD sources in 2025.
Real-World Example: Navigating IRD in a Modern Estate
Consider the case of Olivia, who inherited her late father’s estate in Brisbane. Among the assets:
- Unpaid salary from his job (earned but not received before passing)
- Dividends from shares declared but not yet paid
- Rental income from a property, with tenants owing two months’ rent
All these payments are classified as IRD. Olivia, as executor, must ensure this income is declared in the estate’s trust return. If she distributes the income directly to herself or other beneficiaries, each recipient must report their share as income. Failure to correctly report IRD can trigger ATO audits or penalties—something the ATO has flagged as a 2025 compliance priority.
Practical Tips for Executors and Beneficiaries in 2025
- Keep Meticulous Records: Track all income accrued before death and clarify whether it’s IRD or a capital asset.
- Communicate Early: Executors should inform beneficiaries about possible IRD and the associated tax implications.
- Understand Superannuation Rules: Check whether any death benefits are taxable as IRD and whether dependants or non-dependants are receiving them.
- Don’t Overlook Digital and Foreign Assets: Crypto wallets, PayPal balances, and overseas shares may all trigger IRD obligations.
- Plan Distributions: Where possible, structure estate distributions to minimise tax, making use of offsets, concessions, or the estate’s lower tax rate if available.
Conclusion: Why IRD Knowledge Matters in 2025
IRD isn’t just a footnote in estate law—it’s a live issue that can mean the difference between a smooth inheritance and a surprise tax bill. With the ATO tightening its approach and estate planning becoming more complex, staying informed is essential for anyone involved in administering or receiving an inheritance in Australia.
