Australia currently has no specific ‘death duty’ or ‘death tax’. Death duties were abolished in Queensland in 1979 and all other states followed suit not long afterwards. However, there are still other ways in which tax can impact on a deceased estate.
The most obvious issue is that it is an Executor’s duty to ensure that all of the deceased’s affairs are finalised. Part of this duty is to lodge a tax return, if necessary. Depending on the deceased’s circumstances, a final tax return for both the deceased personally and their estate may be required. We always recommend engaging an accountant to ensure that there are no outstanding obligations to the Australian Taxation Office.
Payment of superannuation benefits to anyone other than a deceased person’s dependents will likely be taxed. For superannuation purposes, a dependent is usually a spouse or minor child. So an adult child will likely have any superannuation that is inherited taxed.
Capital gains tax may be applicable depending on the deceased’s assets. For example, if the deceased acquired an asset subject to CGT on or after 20 September 1985 and a beneficiary then acquired that asset, the beneficiaries’ cost base is the date that the deceased acquired that asset. Depending on the change in value of that asset over time, CGT could significantly reduce the net inheritance received by that beneficiary, although this won’t be realised until the sale or transfer of the asset.
Unlike other property transfers, transfer duty (aka stamp duty) is not typically payable on the transfer of real property from a deceased estate to a beneficiary.
Many other countries have a death tax. either an ‘estate tax’ or ‘inheritance tax’. Some countries impose an ‘estate tax’ which is a tax paid from a deceased person’s estate and is assessed on their assets. Alternatively, an ‘inheritance tax’ is imposed in other countries which is paid by a beneficiary who receives a deceased person’s assets. The topic of re-establishing a death tax in Australia often makes headlines. For comparison, we are one of the few countries that does not have a death duty – the average rate of death duty across the OECD is 15%.
Expert advice should always be obtained when preparing your estate plan to ensure that payment of tax does not have unintended consequences on the inheritance received by your beneficiaries. Please contact us if our team of solicitors can be of service to you.
This post is general information only. It is not a substitute for legal advice from a lawyer. If you have a legal issue, you should always contact your lawyer to obtain advice that is relevant to your circumstances.