Do death duties apply in Australia?
Inheritance Tax, commonly referred to as “death duties”, has not applied in Australia since 1981.
Despite abolishing Inheritance Tax, there are still a number of taxes, that may impact on you if you receive an inheritance from a deceased Estate. These include capital gains tax, superannuation and stamp duty.
Potential inheritance taxes you should be aware of:
Capital Gains Tax
You may be liable to pay capital gains tax if you inherit shares or real estate.
Capital Gains Tax is the difference between the value of the property when purchased and the amount received when it was sold.
The way capital gains tax is calculated depends on if the shares or real estate were purchased by the deceased prior to 1985. This was the year capital gains tax was introduced.
You do not have to pay capital gains tax if you sell the property within 2 years of inheriting it. The property must have been the primary residence of the deceased.
If you are a beneficiary named in the deceased’s superannuation fund, then you may also be required to pay tax on your inheritance. If you were not a financial dependent of the deceased, such as a spouse or child under 18 years of age, then you will have to pay tax on your inheritance.
It is also likely that you will have to pay stamp duty on the transfer of any property inheritance.
How can I reduce my inheritance tax?
There are actions you can take to minimise the impact of having to pay tax on your inheritance.
The first action to take is to seek expert legal advice on the potential taxation that you may be required to pay on your inheritance.
For example, in the case of inheriting the family home, a sale of the property within 2 years can ensure that you are not liable for any Capital Gains Tax. Other actions can be taken to minimise your taxation exposure and an expert Wills and Estates Lawyer will be able to walk you through the options available to you.
You can also take actions to minimise any taxation that your beneficiaries may be liable to pay. This can include checking your superannuation policies on what beneficiaries are included in the definition of “dependent” and therefore not liable to pay any tax if they inherit your superannuation funds. It may also include exploring options on setting up a Trust for your beneficiaries which can also minimise the amount of taxation payable.