Australia: Tax on property in deceased Estates – Part I: CGT

PART I – CAPITAL GAINS TAX

If you are thinking of doing a Will, or you are the executor of a deceased estate, it is important to consider what taxes and duties may be payable by the estate or the beneficiaries when the time comes for an executor to deal with the estate property following the death of the Will-maker.

While we cannot give specific advice in relation to taxation issues, we can provide the following general information relating to taxes and deceased estates. This first blog deals with CGT.

CAPITAL GAINS TAX GENERALLY

It is important that Will-makers, and executors of an estate, understand the Capital Gains Tax (“CGT”) implications of the estate. Some assets in an estate that may be assessable for CGT are real property, shares, collectables, antiques, jewellery and, in some circumstances, items of personal use.

For the purposes of CGT, death does not constitute a disposal. Therefore, there is generally no CGT payable on the transfer of the asset from the deceased’s name to the executor or to a beneficiary. However, the asset may become assessable for CGT when the asset is sold by the executor or the beneficiary.

CAPITAL GAINS TAX ON REAL ESTATE

If the real property was the deceased’s principal place of residence, the estate will have an exemption from paying capital gains tax, if the property is sold within two years from the date of death.

There are additional exemptions available in circumstances where spouses or beneficiaries live in the deceased’s property as their own principal place of residence or when the property was purchased before 20/9/1985.

If it is not the executor’s or the beneficiary’s intention to sell the property within two years from the date of death of the deceased, a valuation should be obtained from a registered valuer. This will provide proper valuation evidence of the property at the date of death and facilitate the calculation of capital gains tax payable when the property is eventually sold.

Any person preparing a will, and any executor of a deceased estate, should take careful advice about the tax implications of the will so that they can manage the risk of unnecessarily incurring a capital gains tax liability.