Inheritance Tax, commonly referred to as “death duties”, has not applied in Australia since 1981.
Despite abolishing Inheritance Tax, there are still a number of taxes, that may impact on you if you receive an inheritance from a deceased Estate.
Capital Gains Tax
If you inherit shares or real estate then Capital Gains Tax may apply to your inheritance.
Capital Gains Tax is a tax that is calculated on the difference between the value of what the shares or real estate were purchased for and the value (i.e. sale price) when you dispose of them .
In the case of inherited shares or real estate, it will depend on whether they were purchased by the deceased prior to 1985 (the year Capital Gains Tax was introduced) as to how any Capital Gains Tax will be calculated. One important thing to be aware of, if you inherit the main residence of the deceased is that no Capital Gains Tax will be payable, if you sell the property within 2 years of inheriting the property.
If you are a beneficiary named in the deceased’s superannuation fund, then you may also be required to pay tax on your inheritance. If you were not a financial dependent of the deceased, such as a spouse or child under 18 years of age, then you will have to pay tax on your inheritance.
It is also likely that you will have to pay stamp duty on the transfer of any property inheritance.
What Can I do to Minimise Taxation on my Inheritance?
There are actions you can take to minimise the impact of having to pay tax on your inheritance.
The first action to take is to seek expert legal advice on the potential taxation that you may be required to pay on your inheritance.
For example, in the case of inheriting the family home, a sale of the property within 2 years can ensure that you are not liable for any Capital Gains Tax. Other actions can be taken to minimise your taxation exposure and an expert Wills and Estates Lawyer will be able to walk you through the options available to you.
You can also take actions to minimise any taxation that your beneficiaries may be liable to pay. This can include checking your superannuation policies on what beneficiaries are included in the definition of “dependent” and therefore not liable to pay any tax if they inherit your superannuation funds. It may also include exploring options on setting up a Trust for your beneficiaries which can also minimise the amount of taxation payable.
Graeme Heckenberg is an expert Wills & Estates lawyer and will be able to guide and advise you on Wills, Estates Litigation. If you are living on the Northern Beaches and surrounding Peninsula and need expert advice call Graeme Heckenberg at his office on The Northern Beaches for an appointment close to home on 9221 0341.
Ask about our “No Win No Fee” policy on Will Disputes!
City Experience by the Beach.