How much tax do you pay on a deceased estate?
Jo Bjelke-Petersen is famous for many things, but today we tend to forget that he brought about the end of death or estate duties in Australia.
In the seventies, the states had death duties, calculated on the value of a deceased estate, and the Commonwealth also had what it called estate duty.
Jo decided that if Queensland had no death duty, an inflow of investment would come to Queensland, and abolished Queensland’s death duty. He was right, money poured in, and so the other states had to follow. The Commonwealth followed soon after, and so now there are no death, estate or inheritance taxes or duties as such in Australia.
This, of course, does not mean that governments have not got ways of collecting money following a death!
The three major ways are from stamp duty, capital gains tax (CGT) and a superannuation levy.
The stamp duty is not something specific to estates;
It applies to all real estate transactions. If an estate sells real estate so as to provide funds for a distribution to beneficiary, it will pay vendor duty, which is one of the normal expenses of the sale, as are agent’s commission and conveyancing costs.
The amount available for beneficiaries is the net received after all expenses.
If moneys in a superannuation fund pass to a beneficiary, who is not a partner or dependant, the fund will pay 15% of the payment in tax. Straightforward, yes, but if those funds were just part of the deceased assets, no tax would be paid, subject only to CGT.
The CGT position is a lot more complicated
And can easily lead to disagreements. CGT is payable on the disposal of liable property, which encompasses most assets acquired after 1984, except a family residence. However, a transfer to a beneficiary is not treated as a disposal, so the estate does not incur a CGT bill, as a result of such a disposal. If the estate sells a liable property, it will incur a tax bill in respect of any gain, which is another estate expense, and in effect shared by all beneficiaries.
Lets say that a beneficiary either wants or is entitled to a particular property, which has a nice increase in the value attached and is a liable property. If the estate sold it, there would be a CGT bill, but if the beneficiary takes it, the beneficiary is deemed to have acquired it at the original cost to the deceased. When the property is eventually sold, the beneficiary’s gain will be the difference between that original cost – not the value as at the date of death – and the sale proceeds.
As you can see, the estate saves money, and the beneficiary will pay more than if the property had been bought on the open market at the time of death.
Of course, if different properties are left to different beneficiaries, the financial effects may be quite different for them.
Some people making a will may say “So what!”
But most will want to give some thought to the possible consequences of the alternatives open to them.
The scenarios we have looked at are not too unusual, but many of those making a will have not considered the possible outcomes. Even in what might seem to be a straightforward situation, expert advice can avoid the chances of disputes between beneficiaries, and ensure that your true wishes come to pass.
If you haven’t made a Will or you want to ensure that your assets are distributed as per your wishes, call Graeme today to seek expert advice.
With offices conveniently situated in Sydney’s CBD and easy access to all transport, give yourself peace of mind and make an appointment today.
Estate Planning Lawyers Sydney – Call on 02 9221 2779 or email on firstname.lastname@example.org you’ll be glad you did!
See our Will Dispute Lawyer & Contesting Wills page for more information on the Wills & Estates services we provide or contact us for advice specific to your situation.