Will I pay Capital gains Tax on my Inheritance?

In Australia, special capital gains tax rules apply when dealing with assets of a deceased estate.

The most common types of assets inherited by a beneficiary that could be subject to a capital gain are property, shares and managed funds.

You may have just received (or are about to receive) an inheritance. While this article isn’t a substitute for specialist tax advice it considers some of the capital gains tax implications should you ultimately choose to sell an inherited asset of this nature.

Implications for Australian tax residents

Where you’re an Australian resident for tax purposes and you inherit assets from the deceased estate of an individual who was also an Australian tax resident, the transfer of these assets from the deceased estate is not a capital gains tax (CGT) event, in and of itself. This means that only if you decide to sell the asset at a later point in time, then the normal CGT rules apply.

In this scenario, CGT outcomes are an important aspect to consider when selling inherited investments like shares, managed funds and investment properties.

The sale of the family home may receive the ‘main residence exemption’ which means that CGT will not apply. However, this an area where advice is best sought.

Note: where a family home was used for investment (income producing) purposes at some stage, only a partial main residence exemption will occur. We discuss this in a little more detail below.

Implications for non-Australian tax residents

Where the deceased individual was an Australian resident for tax purposes, if you’re a non-Australian tax resident CGT may be applicable.

Depending on the type of asset inherited and the circumstances involved, this can be an especially complex area, so specialist advice is key.

Other Capital Gains Tax considerations

Generally speaking, if the asset is:

  • a collectable asset, such as rare stamps, then CGT may apply depending on a host of circumstances
  • a personal-use asset such as jewellery, a car or boat CGT will typically not apply.

Capital gain (or losses) on an inherited asset

There are several considerations involved in calculating a capital gain or loss. Some of these can include:

  • the type of asset, and how it was used prior to the deceased’s passing;
  • the deceased’s date of death;
  • the date the asset was inherited;
  • your ownership period, prior to selling the asset;
  • whether you are selling the asset as an individual Australian tax resident, or not.

Did you know:

Inheriting a family home may involve CGT when it is sold. This depends on a few factors, such as when it was bought, when it was sold and if it was used for investment purposes at any time during the ownership period.

You should keep detailed financial records related to an inherited asset. This information is needed to determine if there’s any CGT payable later when the asset is sold.

Your financial adviser will be able to assist you in understanding any tax implications of inheriting an asset, based on your personal circumstances, objectives and goals.

 

Source: Perpetual

 

 

Discover the benefits of a privately owned Licensee.

Voulla Flaskos

Source Accounting

“Capstone made everything so easy by providing all the templates and support we need which makes me feel comfortable that I am in good hands with my licensee. I would highly recommend Capstone to any fellow Accountant."

Tania Magon

Maven Accounting

“I would recommend Capstone to any accountant seeking to become licenced within the financial services industry. Their personal service and support to me and my firm has been exceptional."

Anthony Buckley

Financial Planit

“I joined Capstone Financial Planning in 2003 as I was looking for a Group that could offer a high level of independence and freedom that came from not being institutionally owned."

Maria Picciani

Willow Wealth Management

“Compliance support and feedback is crucial to our business. The Capstone team are always there to assist us in improving and providing best advice and best practice standards. Their input is always positive and constructive."

KATRINA GAY

Nicholson Financial Planning

“I would happily recommend Capstone as a licensee to other advisers. The Capstone staff are friendly, knowledgeable, and professional, and they are genuinely committed to meeting their advisers' needs. I feel very secure in the knowledge that I have Capstone backing my business.”

MARK COOPER

Acquire Strategic Advisers

“Capstone’s support has been exceptional and consistent from the time our business made the transition. Capstone is continually trying to enhance their service offerings to their advisers, at both the higher level, and more specific lower levels within our business. They are an exceptional licensee and lead from the front.”

JEANETTE SCHRAM

Nett Assets

“I can highly recommend Capstone for planners seeking an independent licensee that’s not in your face but provide quality support services. Their service and support is second to none and has allowed us to concentrate on providing our clients with a premium level of service.”

BEN DREW

Paradigm Principle

“Having been with Capstone for a number of years, one thing that really stands out is their willingness to help and can do attitude. These are qualities we really appreciate.”

FIND A CAPSTONE ADVISER

PROUDLY ASSOCIATED WITH