“I am currently on benefit through Centrelink and have recently received a small inheritance from an Estate of $20,000. I’m concerned that this will affect my payments. Do I have to disclose the inheritance to Centrelink? And do I have to pay tax on the $20,000?”
Do I need to tell Centrelink if I get an inheritance?
Does inheritance affect Centrelink payments?
The impact of the inheritance on your Centrelink benefit will depend on the type of benefit you are receiving from Centrelink and whether you are subject to the asset and/or income test.
Under the Centrelink income test, some lump sum payments are excluded from the income test. Lump sum payments are payments that are one-off payments and not reasonably predictable. Under this rule, a lump sum inheritance payment is exempt from the income test.
However, the manner in which you use the lump sum payment may cause it to be counted as income or an increase in your assets by Centrelink.
According to Centrelink if you put the money towards your house or mortgage then it will not affect your Centrelink benefits. However, if you put the money in your bank account or you use to purchase non-exempt assets such as a holiday home then it will count towards the income and/or asset test.
To ensure that your inheritance does not have an adverse effect on your Centrelink benefits then you need to be very careful about what you do with your inheritance.
Do I have to pay tax on my inheritance?
In Australia, there is no ‘death duty’ or other similar taxes that will apply to your inheritance.
So, if you receive your inheritance as a lump sum payment, you will not have to pay tax on this inheritance.
However, if you receive the money as ‘income’ from the Estate (such as rental income from an investment property) then these amounts will need to be included in your tax return. Also, if your inheritance consisted of ownership of real estate there may be capital gains tax implications in the event that you wish to sell the property.
What should I do if I receive an inheritance?
Receiving an inheritance is a good thing. You just need to make sure that you are fully aware of the impact that it can have on your Centrelink benefits before you decide how to deal with your inheritance. A good Wills and Estate lawyer can explain the different methods of using or applying your inheritance to ensure that you receive the benefit.