What taxes apply to inheritance and estates in Australia?

What taxes apply to inheritance and estates in Australia?

Imagine your beneficiaries learning of their inheritance, lovingly provided by your estate, and then, your beneficiaries are hit with a doomy-sounding thing called a CGT (capital gains tax) event. Sounds a bit anticlimactic. A CGT event doesn't have to be a dark cloud. In fact, it just might be a silver lining in the right circumstances. You have to know the tax law. Fortunately, we do.

We'll briefly cover how a CGT event and inheritance and estate taxes are connected and where to find more information for those circumstances that are more complex.

What taxes apply to inheritance?

The Australian Taxation Office (ATO) states there aren't inheritance or estate taxes in Australia. Instead, a capital gains tax may apply to the disposal of inherited assets. If you're making an estate plan or plan to inherit, you may want to review your tax obligations.

What assets qualify for the 50% discount CGT?

Most assets owned for more than 12 months from the CGT event date qualify for the 50% discount. What happens when a beneficiary sells property inherited from a deceased estate? Does that capital gain qualify for the 50% discount?

Previous ownership counts toward the 12-month period if either of these conditions applies:

  • You obtained the asset through a deceased estate on or after 20 September 1985.
  • Ownership changed because of a relationship breakdown. If you and your spouse had joint ownership of the asset for more than 12 months, you will satisfy the requirement.

Be aware that there may be other particulars that can determine whether you qualify for the 50% discount. You may not be able to clearly define every scenario without first applying.

When do estate taxes get tricky?

For some, residency can be the sticking point for whether or not a CGT discount will apply.

Capital gains made by a foreign or temporary resident are excluded from the discount if the CGT event occurred after 8 May 2012. So, beneficiaries of a deceased's estate who aren't legal Australian residents, are less likely to be eligible for the discount. If the inherited asset was acquired before the cut-off date then the CGT should apply. It's worth consulting an estate tax expert for details that apply to your specific situation. Doing so could save you 50% in taxes.

For help figuring your CGT, see the ATO's webpage on calculating a CGT.

Contact us for professional advice and guidance on proper estate tax planning.

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