Death and Taxes
“In this world nothing can be said to be certain, except death and taxes.” ~Benjamin Franklin
Both death and taxes are certain but did you know that death may also lead to tax or, at the very least, alter the tax profile of assets moving through an estate?
Death remains unavoidable but you can certainly plan for tax. Taxpayers should seriously consider their estate planning to prevent avoidable tax liabilities. Established wills should also be reviewed on a regular basis to ensure new financial circumstances are addressed.
A capital gain or loss for the deceased that arises as a consequence of their death is disregarded. CGT assets transfer to the Executor or Legal Personal Representative without triggering a tax liability. Any unused capital losses carried forward by the deceased are also disregarded and lapse without passing to the estate.
Once in the estate, the tax treatment of assets previously held by the deceased may be altered by the provisions of the will.
Relief from capital gains tax exists in the form of a deferral of any tax liability. This applies to assets owned by the deceased before death transferring to a legal personal representative and subsequently passed on to a beneficiary pursuant to the deceased’s will. This relief is limited however and exceptions apply where the assets are passed on to ‘tax-advantaged beneficiaries’ including:
- An exempt entity such as a charity;
- A Complying Superannuation Fund; or
- A foreign resident.
It should be noted that as long as the deceased’s date of death is after 19 September 1985, the legal personal representative or beneficiaries of an estate are deemed to have acquired all assets on the date of death. Accordingly, pre-CGT assets held by the deceased convert to post-CGT assets with a cost base for the LPR or beneficiary equal to the asset’s market value at date of death.
Ordinarily, a disposal of the deceased’s main residence within 2 years of the date of death will be exempt from Capital Gains Tax. The deceased’s post-CGT main residence may also be exempt from tax upon disposal 2 years or more after the date of death in the following circumstances:
- Post-CGT Dwelling acquired before 20th Aug 1996:
- Dwelling must be deceased main residence for the full ownership period ; and
- Dwelling must not be income producing for the full ownership period.
- Post-CGT Dwelling acquired after 20th Aug 1996:
- Dwelling must be deceased’s main residence immediately prior to their death; and
- Dwelling must not be income producing immediately prior to their death.
The combination of asset treatment in an estate, dates of acquisition and usage of individual assets, as well as the terms of the deceased’s will may create subtle distinctions in the application and timing of capital gains tax.
Should you wish to discuss your potential tax circumstances, please contact Tim Bow or any of our Taxation team by clicking the button below to find the experts nearest you.