Death and small business CGT concessions

When a person dies, their assets are transferred to their legal personal representative (LPR) or are acquired by a surviving joint tenant, where the deceased owned those assets as joint tenants with another person. As there is a change of ownership a capital gains tax (CGT) event arises.

Tax or No Tax?

However, any capital gain or loss is disregarded where either of the following exists;

  • The assets are transferred from the deceased to the LPR;
  • The LPR transfers an asset to a beneficiary in the estate, or
  • The asset automatically transfers to a surviving joint tenant.

In effect, by disregarding any capital gain upon death any unrealised capital gain is deferred until a later sale of the asset by the LPR, beneficiary or joint tenant.

Small Business Consessions

The LPR or beneficiary of the deceased estate will be eligible for the small business CGT concessions where:

  • the asset is disposed of within two years of the date of death (although we may allow a longer period by granting an extension of time), and
  • the asset would have qualified for the small business CGT concessions if the deceased had disposed of the asset immediately before their death.

Provided these conditions are satisfied, the small business CGT concessions are also available to the trustee of a trust established by the will of the deceased, a beneficiary of such a trust, and a surviving joint tenant.

For the retirement exemption, there is no need for the amount to be paid into a super fund, even if the deceased was less than 55 years old just before his or her death.

The 15-year exemption can also be chosen if the deceased had met the requirements, except that it is not necessary for the CGT event to have happened in relation to the retirement of the individual.

Disposal of asset after two year limit

If a person carrying on a business dies and their assets transfer to their LPR, beneficiary, surviving joint tenant, or trustee or beneficiary of a testamentary trust, the active asset test is applied to the transferee in relation to any capital gain made on a sale of the assets after the two-year time limit.

This means if the transferee does not continue to carry on the deceased’s business, or use the asset in another business, after the two-year time limit, the active asset test may not be satisfied and the small business concessions may not be available.

In the next article in this series I look at what happens if the deceased has previously used the small business rollover concession.

Steve Wildes, Partner, Paris Financial

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