Inheritance Tax in Australia
The Liabilities That May Arise From an Inheritance
Tax on Inheritance in Australia
When a loved one passes, the inheritance tax implications will naturally be the last thing on your mind.
Not only are you dealing with feelings of immense loss and sadness, but you may also have to attend to more immediate and time-sensitive matters such as the funeral and probate — especially if you’re named as the executor in the will.
However, at some point in the future, death duties may become an important factor in how you handle your inheritance or the final benefit you receive. Furthermore, it’s crucial to ensure you work within the statutory frameworks to prevent any later issues with the ATO (Australian Tax Office).
As an experienced Wills and Estate Lawyer, Falzon Legal will guide you expertly through the basics of inheritance tax in Australia. However, this article provides general information only and should not be considered financial advice — for specialist counsel on specific inheritance tax matters, consult with an accountant or tax professional.
Australian Inheritance Tax
As proudly declared on the ATO’s official website, there are currently no estate or inheritance taxes in Australia.
This is in vast contrast with many Western nations — such as the UK, Germany, and the United States — that place a tax liability on the deceased’s estate, or the inheritance received by the beneficiaries.
This hasn’t always been the case.
Death tax, or more accurately, death duty, was initially introduced to New South Wales in the 1880 Stamp Duties Act. Over the next century, this tax remained — albeit with differing liabilities and rates — until it was finally abolished in 1981.
However, as US founding father Benjamin Franklin said — in this world, nothing can be said to be certain, except death and taxes.
While there may be no death tax in Australia, taxation obligations on inheritance may still arise — especially in circumstances where the estate generates income.
Inheritance and Tax Obligations
Generally speaking, there are five types of income that an estate can generate which may incur a tax liability:
1. Dividends
If you are the beneficiary of stocks or shares, these aren’t taxable. However, any dividends generated by these assets — whether immediately or at a future date — are taxable.
In most circumstances, these will be assessed under personal income tax regulations.
2. Rent
Should you be bequeathed a rental property — the property isn’t taxable (unless subject to CGT if it’s subsequently sold). However, any rental income earned from the building is.
3. Business Profits
If you receive an ongoing business as an inheritance, the company is not taxable as an inherited asset. But, the profits created by the operation, if any, will be subject to the appropriate tax liability.
4. Super Death Benefit
The deceased may have nominated you as the beneficiary of their super fund. This Super Death Benefit may incur a tax liability upon you.
This tax, and its rate, depend upon numerous factors, including:
- If you receive the benefit as an ongoing income stream or a lump sum.
- If you were the deceased’s dependent.
- If the super is taxable or tax-free, and also if the provider has already paid tax on the super.
- The age of the deceased at the time of their passing, and your current age.
Alternatively, a Super Death Benefit may be paid to the estate, instead of a nominated person. Typically this occurs when:
- There’s a binding nomination to pay the estate.
- The Super Fund Trustee decided to pay the estate — if there was a non-binding nomination to a beneficiary, or there was no nomination made.
Taxation rules and Super Death Benefit entitlements and nominations are complex areas of finance and inheritance. Consult with the ATO and a financial professional for specific advice.
5. Capital Gains on Inherited Property
Assets you inherit, and that deliver a capital gain, may be liable for CGT (capital gains tax).
For tax purposes under current ATO legislation, you’re deemed to own any bequeathed investments or property at the date of death of the deceased — irrespective of whether you receive these assets immediately or at a future date.
This ‘death date’ is also the market value point or cost base. Therefore, should you subsequently dispose of the inherited capital, you may be liable for tax on any portion that exceeds the original market value point.
That said, some exclusions do apply for capital gains tax on inherited property — for example, being the beneficiary of the family home in which you live.
Don’t Pay Excessive Tax on Your Inheritance
Can You Avoid Beneficiaries From Paying Capital Gains Tax on Inheritance Property?
If you’re planning on leaving assets to family and loved ones, it’s only natural you want them to receive the maximum benefit. However, income and capital gains tax on inheritance could seriously affect the value of your generosity.
A testamentary trust may reduce, or eliminate, tax liabilities.
Firstly, any bequeathed assets left in a trust don’t automatically incur a CGT liability — meaning that it can be deferred to a future time. Secondly, as assets can be directed to any beneficiary, they can be directed to persons with the lowest marginal rate of income tax.
At Falzon Legal, we can work considerately with you to create a powerful testamentary trust that protects the interests of your beneficiaries. And, although we cannot offer tax or investment advice — we will liaise efficiently and promptly with your accountant or financial consultant to create a framework that’s both legally and financially sound.
International Inheritances and Taxation
The country in which you reside, whether the bequeathed assets are located in Australia or abroad, and if the inheritance generates profits at home or in another nation can all affect your tax liability.
While Australia has no direct inheritance tax on property and assets — many other countries do. If you’re considered a domicile overseas, despite being an Australian citizen, you may be liable to that nation’s inheritance tax laws.
Falzon Legal is a recognised expert in international estate planning and inheritance. Working directly with our network of overseas solicitors and financial professionals — we ensure meticulous attention to your international inheritance tax matters.
Falzon Legal — Your Wills and Estates Lawyer
Your Last Will and Testament is your legacy — delivering financial assistance, comfort, and memories to your loved ones.
But, even though Australia has no direct inheritance taxation, liabilities may still arise for your beneficiaries — reducing the monetary value of your bequest. Falzon Legal cannot ease the pain of loss experienced by family and friends after your passing — but we can lessen the burden through robust estate planning.
Working compassionately and considerately with you, our unmatched experience and ceaseless attention to detail ensure that your loved ones receive your generous gifts with the minimum of fuss, heartache, and statutory liabilities.
Inheritance Taxation Australia FAQs
Is Inheritance Taxed in Australia?
Australia has no inheritance tax. However, you may have to pay tax on bequeathed assets that generate an income, or deliver a capital gain.
Do You Pay Tax on Inheritance in NSW?
While NSW was the first state to introduce death duty in 1880, since 1981 there has been no inheritance tax.
Do You Have To Pay Tax on Inheritance From Overseas?
If you’re registered as a domicile in Australia, there is no inheritance tax liable for international inheritances. However, tax may still be payable in the country in which the assets reside.
Do I Have To Report Inheritance on My Taxes?
Currently, Australia has no inheritance tax. However, the assets you receive might be subject to capital gains tax on property disposals, or income tax on monies generated by the inheritance. This must be declared to the ATO.
Do You Pay Tax on Inheritance Australia?
Taxation may be due on income generated from any inherited assets — although Australia has no direct inheritance tax.
Can You Avoid CGT on Inheritance Australia?
Creating a Testamentary Trust as part of your Last Will and Testament may allow your beneficiaries to reduce or eliminate their capital gains tax liability.
What Is the ATO Inheritance Tax Position?
The Australian Tax Office states on its official website that there is no inheritance tax in Australia.