Most of us would rather not think about the death of a loved one.  Unfortunately, like paying tax, it is inevitable.  But what happens when you are the beneficiary of a deceased estate?  In this article we discuss the basics of receiving an inheritance:

A loved one has passed away.  What happens now?

A person known as an Executor is appointed to gather the assets of the deceased person, pay their debts, and distribute the balance amongst their beneficiaries.  If they had a will, this person will be appointed in accordance with the deceased’s wishes.  If the died without a will (known as “intestate”), an Executor is appointed by the State.

What are the tax implications of receiving an inheritance?

As there are no death duties in Australia, death itself does not incur any extra tax.  However, if you inherit an asset and then sell it, you may be liable for Capital Gains Tax (CGT).  One of your aims as a beneficiary will be to minimise or avoid this tax.

  • The family home:  Normally the family home is exempt from CGT.  The same applies if you inherit a family home provided you sell it within two years.  Outside of this period, you would be assessed on the increase in value since the date of death at the time of sale.
  • Other assets:  If you inherit other assets such as property (other than the family home), shares, and other investments, you may be liable for CGT if you sell them.  It depends on when they were purchased.  You can save money and hassle by finding out their purchase price or their value at the date of death.
  • Tax returns:  In the year of the deceased’s death two tax returns are required – one for the deceased person up to the date of death, and one for the estate for the remainder of the financial year.  Both tax returns qualify for the full tax-free threshold.  Less tax may be payable if the estate sells an asset and gives you the cash rather than you getting the asset and selling it.

Getting financial advice for inheritance

Knowing what to do after receiving an inheritance can be difficult.  A professional financial planner can assist you in managing your inheritance to ensure that you maximise your investment potential whilst minimising the possible tax implications.  For more information or to arrange your free first meeting with a Financial Spectrum financial planner in the Sydney CBD, give us a call on 02 8238 0888, or fill in our online appointment request form.

You might also like to download our free Ebook Managing Inheritance and Windfalls for more information about what to do when you are the beneficiary of an inheritance.

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3 Responses to “Financial Planning for Beneficiaries: Tax Implications of Inheritance”

  1. jill November 20, 2012 at 1:23 pm #

    Mother in nursing home for 18mnths, her house was left vacant, went on market when she died 1 year ago, still has not sold.
    Have read CG does not affect siblings till 2yrs after her death, (we have 1 more year) is this true?
    I was told of a tax from when she left her home to the nursing home?
    Home has been vacant for 2 1/2 yrs but house & grounds have been maintained while we wait sale (its now going for auction next month)
    Can you enlighten me regarding any taxes please.
    Thank you so much
    regards,
    jill

  2. Patrick Harty February 6, 2013 at 12:01 pm #

    I wish to leave some shares to my grandchildren when I die.What are the tax implications for them.At the present time the shares are worth approx.$52,000 to be divided amongst 5 grandchildren

  3. Evan August 15, 2013 at 8:34 am #

    My parents will soon move in to care.

    Due to Centrelink requirements they will need to sell their home after two years to fund their care (hopefully they will live that long).

    Which will mean that any estate remaining at their death could be cash.

    If I inherit cash how is this taxed?

    I think this will be an increasingly common scenario.

    Many thanks for any guidance you can provide,

    Evan