In Australia, there are no inheritance taxes payable. There are no capital gains tax payable on a transfer of assets from the deceased to the estate and finally to the beneficiaries. However, as the Australian Taxation Office points out on its website, “There may be some tax obligations for beneficiaries, depending on the nature of any distribution they may receive.”

Receiving Assets from the Estate

Beneficiaries often receive money held by the deceased in a bank account.  A beneficiary does not pay any tax on such money received. The deceased or the estate in the final tax return will pay tax on the taxable amount of the interest earned in relation to these monies.

Beneficiaries who receive real estate, or a share of the real estate from the estate are not taxed at the time when the title is transferred to them. Instead, they inherit the “cost base” namely the costs incurred by the deceased at the time when the real estate was acquired by the deceased so that when the real estate is disposed by the beneficiary, capital gains tax can be calculated to determine if any gain is made. Capital gains tax is payable by the beneficiary on any gain made.

This position is similar to company shares held by the deceased. Company shares transferred to the beneficiary are received tax free. Capital gains tax is payable when the shares are disposed of by the beneficiary and income tax is payable on income derived from the shares as dividends.

Receiving Money from Sale of Assets by the Estate

If the assets of the estate such as real estate or company shares are sold by the executor or administrator of the estate, they are required to pay any tax payable by the estate. The executor or administrator applies to the Australian Taxation Office for a tax file number and files an estate tax return. For a period of two years, the estate receives the benefit of paying tax at the progressive tax rate, same as an adult taxpayer. After that, the estate is taxed as a trust at the maximum tax rate if paid by the trustee, or if allocated to beneficiaries who are presently entitled then tax is paid by the beneficiary at their personal marginal rate of tax.

The executor or administrator of the estate as trustee is personally liable for tax payable and it is their duty to obtain tax advice before the distribution of the estate to the beneficiaries.  Firstly, the deceased’s outstanding tax returns to the date of death must be prepared and filed.  Then, the tax return for each tax year the estate is administered must be filed. If the executor or administrator fails to pay such tax, they may be personally liable to the Australian Taxation Office.

Capital gains tax is payable is by the estate if the estate has realised a gain from the sale of an asset. Calculating the amount of the gain depends on the date of the acquisition of the asset by the deceased, the date of the death of the deceased, the date of the sale of the asset and the use of such asset by the deceased as well as the ultimate sale price of the asset.

For example, if the deceased had acquired property after 20 September 1985, whether capital gains tax is payable by the estate upon the sale of such asset will depend on whether the deceased had used the property as his or her principal place of residence or as an investment property producing income to the deceased.   If it was the principal place of residence of the deceased and is sold by the estate within 2 years of deceased’s death, then the estate is fully exempt from payment of capital gains tax. If the deceased had obtained income from the property, then capital gains tax applies to the gain received upon the sale of the property.

Receiving Income from the Estate

If a beneficiary is receiving income from the deceased estate such as interest from term deposits or dividends from company shares or rental income from a property, then the beneficiary must report this income received to the Australian Taxation Office. The beneficiary pays tax on that income at the individual personal rate of tax.  The beneficiary is said to be immediately and presently entitled to receive the payments when the estate administration is completed, and the assets are held by the executor as trustee.

Receiving Superannuation Death Benefits 

If a person receives superannuation benefits from the superannuation held by the deceased, the beneficiary may be liable to pay tax on such super death benefits received. Many factors impact on whether tax is payable. A major factor will depend on whether the beneficiary was a dependent of the deceased under tax laws.

A person who is a dependant of a deceased under tax law will not be liable to pay tax on the superannuation received in a lump sum. Under taxation law, a superannuation death benefit dependent includes:

• the spouse or de facto spouse (including same sex relationships) of the deceased.
• the former spouse or de facto spouse (including same sex relationships) of the deceased.
• a child of the deceased under 18 years old.
• a person financially dependent on the deceased.
• in an interdependency relationship with the deceased at the time of death – this means aclose personal relationship between two people who live together, where one or both provides for the financial, domestic, and personal support of the other.

If a non-tax dependent receives a superannuation death benefit paid to the estate from the super fund, then tax is deducted from the payment by the executor or administrator and paid to the Australian Taxation Office. If a non-tax dependent receives the death benefit directly from the super fund, then tax is deducted from the amount prior to payment to the non-tax dependent. The taxable portion will be taxed at 17% and any untaxed element will be taxed at 32%. If the tax file number of the non-tax dependant is not provided, tax will be paid at the highest marginal tax rate (plus the Medicare levy).  The estate remits the tax deducted to the tax office.

Tax may be payable if the superannuation is paid as an income stream.

Contact Robertson Hayles Lawyers at (08) 9325 1700 or by email at enquiry@robertsonhayles.com for legal assistance in in relation to a deceased estate.

Note

The above content is only intended to provide a general overview of the topic discussed. It is not intended to be comprehensive, nor does it constitute legal advice. You should seek legal advice specific to your circumstances before acting or relying on any of the above content.