Death itself does not create a tax liability, however what happens to the assets after you die could result in a tax bill. Creating a will or becoming a beneficiary of one may appear to be more straight than you thought, but the reality is the tax man could take a large bite out of your estate or inheritance.

Assets purchased by the deceased BEFORE September 1985

  • If an asset is sold by the estate there is no capital gains tax.
  • If an asset is transferred to a beneficiary(s), it gets transferred at the current market value (market value at date of death). Therefore, the asset is no longer capital gains tax free and effectively capital gains tax will be applied upon the eventual sale of the asset.

Assets purchase by the deceased AFTER September 1985

  • These assets are subject to capital gains tax if sold by the estate.
  • If the asset is transferred to a beneficiary it will be transferred at the original purchase price paid by the deceased. This could be a problem if the market value is significantly higher than the original purchase price as the beneficiary if effectively inheriting a capital gain and potentially a capital gains tax liability.

Principal place of residence & the two year time limit

  • If you sell the deceased principal place of residence within two years it will be capital gains tax free.
  • If sold after two years capital gains tax will be applied.
  • This could be a problem if there is a delay when getting probate, or there is a dispute against the estate.

Non-resident beneficiaries

  • If the beneficiary is non-resident there may not be a capital gains tax concession/exemption available.

These are just a couple of the major considerations that should be taken into consideration. Estate planning is quite complicated and a mix of accounting and legal advice for your individual situation can greatly assist in minimising the tax burden of your estate. If you feel that any of these matters may apply to you, please contact me on 03 8393 1000 for a no obligation initial review.

Steve Wildes, Partner, Paris Financial

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