Have you just received an inheritance? If the answer to this is in the affirmative, this article may be of particular interest to you.
In Australia, there are special capital gains tax (CGT) rules that apply to the transfer of assets from a deceased estate. The most typical assets which attract capital gains or losses are houses, managed funds and shares.
Not selling? There may be good news!
Australian residents who receive an asset from a deceased estate are not affected by CGT unless they decide to sell the asset, in which case the tax could apply depending on a number of situations.
For foreign residents, CGT applies to the transfer of the asset. When the person dies, that is the date that will apply when calculating the capital gain or loss for the purposes of the transfer.
In the event the asset from a deceased estate:
was acquired before a certain date (namely 20 September 1985) then it will be considered an asset that pre-dated the CGT rules due to the rules commencing after this date;
is a dwelling (for example a unit, house or apartment) then special rules will apply. For example, a main residence exemption may apply either in part or in full;
is a collectable or personal-use asset then it will continue to be treated as such when you receive it and dispose of it;
had a net capital loss that was not applied then it will not be passed on to you as a beneficiary as they cannot be used to offset net capital gains for the purposes of your tax return.
Working out a capital gain or loss
Assets can either decrease or increase in value.
A capital gain will occur when the sale of the asset results in a higher price than the purchase price and a capital loss will occur when the sale results in a lower price than the purchase price.
When calculating a capital gain, you need to consider when the asset was acquired, the period of ownership and whether this is in excess of 12 months and what type of entity is disposing of the asset (e.g. a company, trust, individual, super fund and so on).
Because of the complexities, we will always advise our clients to consult with a financial adviser for assistance to work out the capital gain or loss. This is particularly important for strategies to manage the tax implications.
You should always keep a record of financial information. This includes in relation to inherited assets. This is because you may be required to determine the CGT obligation at the time of lodging a tax return.
If the asset was acquired on or after 20 September 1985, you will generally need a valuation report to evidence the market value, details of costs incurred by the deceased and also costs incurred during the administration phase.
Further, even if the asset predated the CGT rules, you will still need to recall the market value at the date of the persons passing and related costs incurred during the administration phase.
Seeking financial advice
If you haven’t already realised, tax implications associated with a capital gain or loss is seriously complex. That’s not to mention the need to ensure the estate is properly administered.
From a taxation perspective, your best interests need to be kept in mind and strategies should be developed to minimise and protect you so far as possible.
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Disclaimer: This publication is not intended to be comprehensive, nor does it constitute legal advice. We are unable to ensure the information is current and there is no guarantee in relation to accuracy. You should seek legal or other professional advice before acting or relying on any of the content of this publication. The views and/or opinions expressed in this publication is that of the author and may not necessarily represent the views and/or opinions of RHC Solicitors.
Scott A. Green ©