
Understanding the Tax Implications for Inherited Assets
When it comes to estate planning or inheriting assets, the process can be emotionally and logistically complex. One key aspect that is often overlooked is the tax implications of passing assets to beneficiaries. Knowing how different assets are taxed can help beneficiaries avoid unwanted surprises and better plan for the future.
Here’s a breakdown of some of the most common types of assets and how they’re taxed when inherited.
Inheriting cash
Inheriting cash is generally the simplest and most straightforward asset to manage from a tax perspective. When cash passes from a deceased individual to a beneficiary, there are typically no direct tax consequences provided that the cash is in Australian Dollars (AUD).
Inheriting shares
Inheriting shares can be more complicated, as the tax treatment depends on whether the shares were acquired by the deceased before or after 20 September 1985, a critical date for Capital Gains Tax in Australia. If shares were bought before this date, they are considered pre-CGT assets and are generally exempt from capital gains tax when inherited. However, the cost base of the shares is reset to the market value at the date of death.
For post CGT assets, the cost base is based on the original purchase price. When the beneficiary sells the shares, the capital gain or loss is calculated based on this original value. For example, if a beneficiary inherits shares and sells them later at a higher price, they may be liable for CGT on the difference between the original price and the selling price.
Inheriting property
Inheriting residential property brings its own set of rules. For capital gains tax purposes, the beneficiary is considered to have acquired the property at the time of the deceased’s death. If the property was the deceased’s main residence, special rules apply that may offer a full or partial CGT exemption.
If the property is sold within two years of the date of death, a full CGT exemption is often available, provided the property was the main residence of the deceased and was not used to generate income, such as rented out.
If the property is held for longer than two years or used to generate income after being inherited, the tax treatment becomes more complicated and CGT may apply based on how the property has been used.
Inheriting foreign property
For beneficiaries inheriting foreign property or assets from a non-resident, the tax treatment can vary. Generally the cost base of the foreign asset is considered to be its market value at the time of death. If the beneficiary later sells the asset, CGT might apply but there are often ways to reduce the amount of tax payable if the gain is also taxed in a foreign country.
Douable taxation agreements between Australia and other countries can provide some relief, however navigating these rules can be complex and it’s essential to seek advice to avoid overpaying taxes.
Key insights
When an individual passes away and their assets change ownership, a capital gains tax (CGT) event can be triggered. While Australian tax law offers some relief, understanding the tax implications of an inheritance is crucial, not only for beneficiaries but also for those planning their estates. For example, structuring assets or setting up trusts can be effective strategies to help manage future tax obligations.
At Simmons Livingstone, we understand that managing an inheritance or planning your estate is deeply personal and comes with complex decisions, especially when it comes to tax obligations. Our team is here to offer compassionate and expert guidance, helping you navigate your unique situation to ensure your estate is structured in a way that honours your wishes and supports your loved ones.
Reach out to us today to discuss how we can assist with your estate planning or manage the tax impact on inheritance on 1800 618 800 or via email at admin@simmonslivingstone.com.au.