What is inheritance tax in Australia? Is it applicable in Australia like it is in most countries? Before we answer this question, let’s first define inheritance tax. Inheritance tax is a levy against the value of your estate. It is a tax imposed by most countries worldwide, which requires beneficiaries to pay inheritance tax.
Inheritance tax can have implications for family law matters, such as divorce and property settlements. In Australia, property settlements are based on the net value of the assets of the parties. However, Australia does not have an inheritance tax in any of the states or territories.
The inheritance tax was abolished in late 1970s. These taxes were levied on the value of the deceased’s estate and were payable by the beneficiaries. Since then, there has been no inheritance tax in Australia.
Tax Obligations for Inherited Assets
Even though there is no inheritance tax in Australia, beneficiaries may still have tax obligations. This is the case even if they are entitled to income earned by the inheritance. Here are a few examples of when tax obligations may apply:
1. Capital Gains Tax: If you sell an asset that you inherited and make a profit, you are subject to pay capital gains tax in Australia.
2. Rental Income: Income tax applies if you make any rental income from shares or property
3. Income from an estate. Income from an estate can continue to be generated until the executor finalises the estate. This income must be included in your tax return. Executors must also be aware of the tax implications of administering a deceased estate.
4. Superannuation death benefits tax: If you inherit a superannuation death benefit and it is paid as an income stream, the super death benefit may be subject to tax.
5. Rental income tax: If you inherit a property and receive income from renting it out, the rental income may be subject to income tax
6. Goods and Services Tax (GST): In certain cases, the sale of inherited assets may be subject to GST if the asset is considered a taxable supply.
7. Stamp duty: While not directly related to inheritance tax in Australia, stamp duty may be applicable when transferring property or other assets.
Examples of Inherited Assets That May Have Tax Obligations
When it comes to inherited assets in Australia, beneficiaries may have tax obligations beyond income tax and capital gains tax. Here are some examples of inherited assets that may have tax implications for beneficiaries:
- Cash: If you inherit a sum of money, any interest or investment income earned from that cash may be subject to income tax
- Shares: If you inherit shares in a company, any dividends received from those shares may be subject to income tax
- Property: If you inherit a property, any rental income generated from that property may be subject to income tax. Additionally, if you sell the inherited property and make a profit, you may be subject to capital gains tax.
- Superannuation: If you inherit superannuation death benefits and they are paid as an income stream, they may be subject to tax.
- Business assets: If you inherit assets from a business, such as equipment or machinery, any income generated from those assets may be subject to income tax.
- Artwork and collectibles: If you inherit valuable artwork or collectibles and decide to sell them, any profit made from the sale may be subject to capital gains tax.
Inheritance Tax in Australia: Asset Distribution
The absence of inheritance tax in Australia affects the distribution of assets in the following ways:
1. Tax obligations for inherited assets: Even though Australia does not have an inheritance tax, beneficiaries may still have tax obligations if they are entitled to income earned by the inheritance. For example, if you sell an asset that you inherited and make a profit, you are subject to capital gains tax in Australia. If you make any rental income from shares or property, income tax applies.
2. Testamentary trusts: To help offset any tax obligations, consider creating a testamentary trust. By planning your estate, you can save your beneficiaries from paying unnecessary taxes.
3. Impact on beneficiaries: The absence of inheritance tax in Australia has concentrated wealth in a relatively small number of families. However, beneficiaries may still have to pay tax for the assets they inherit, such as capital gains tax or income tax. Executors must also be aware of the tax implications of administering a deceased estate.
How Inheritance Affects Family Law Matters
Inheritance can also have an impact on family law matters. For example, if a person is divorced and then inherits a large sum of money, their ex-spouse may be entitled to a share of the inheritance. This is because the inheritance is considered to be a financial resource of the person who inherits it.
Inheritance can also affect the division of assets in a property settlement. If a person inherits a property while they are married, the property may be considered to be a marital asset and may be subject to division in a property settlement.
Seeking Legal Advice About Inheritance Tax in Australia
Taxation in family law matters is complex and will typically result in a lot of legal disputes. JB Solicitors is a family law firm that has a wealth of experience in Wills and estate planning. Our lawyers can help you:
- Understand the tax implications of your Will or estate plan;
- Structure your assets to minimise the amount of tax payable on your estate;
- identify paid tax obligations and if you owe any lump sum tax payments; and
- Negotiate or defend tax disputes with the Australian Tax Office.
If you are considering making a Will or Estate plan, it is important to speak to a family lawyer to discuss the tax implications of your plan. JB Solicitors can help you make informed decisions about your Will or Estate plan to get the best outcome for your beneficiaries. Here are some additional ways that family lawyers can help with taxation matters in Wills and Estate planning:
- Identify potential tax traps and pitfalls when you pay taxes and estate taxes.
- Help to comply with taxation law and regulations.
- Provide tax planning advice for your beneficiaries.
Contact us today If you are concerned about the tax implications of your Will or estate plan.
