Capital Gains
7. CGT & Inheritance
Authors: Whitehead Michelle
Firm / Chambers:
Last updated: 13 Sep 2015
- CGT is sometime said to be the closest that Australia comes to a death duty particularly if you inherit shares or an investment property.
- In most cases it is not a CGT event when a CGT asset passes:
- from the ownership of a deceased person to:
- their legal personal representative such as an executor or the administrator or their estate; or
- directly to a beneficiary; or
- from the legal personal representative to a beneficiary.
- However a CGT event is taken to have occurred just before the date of death if a CGT asset is inherited by:
- a foreign resident; or
- a tax-advantaged entity such as:
- a church or charity that is not a registered deductible gift recipient; or
- the trustee of certain types of superannuation fund.
- A CGT event also occurs if the legal personal representative is required to sell CGT assets of the estate or acquire CGT assets for the estate in order to comply with the directions in the deceased’s will.
- If a CGT event occurs in relation to assets of a deceased estate the CGT is payable in the deceased’s final tax return.
- Unused capital losses that the deceased has carried over from previous tax years are lost at the time of death. They cannot be claimed in the deceased’s final tax return or by an executor or beneficiary to reduce capital gains from the sale of estate assets.
- If you are a beneficiary who has inherited a CGT asset other than the deceased’s family home then the normal CGT rules will apply when you sell that asset.
- For the purposes of the 50% CGT discount the 12 months ownership period starts:
- on the date the deceased died for pre-CGT assets; or
- on the date the deceased acquired the asset for assets acquired after 20 September 1985.
- If you inherit the deceased’s family home their main residence exemption will apply to your ownership so long as you sell it within two years of the date of death. If you keep it for more than two years from the date of death it will become your CGT asset unless you are using it as your main residence.
- If you inherit a property which does not attract the main residence exemption the way in which CGT applies will depend on when it was purchased.
- If the property was purchased prior to 20 September 1985 (pre-CGT asset) its value for CGT purposes will be its market value at the time of death.
- If the property was purchased after that date its CGT value will be its current market value minus the initial purchase price that represents its cost base.
- The records that you are required to keep for an inherited CGT asset will also be different depending on whether it is a pre-CGT asset or not.
- If it is a pre-CGT asset you will need to have a valuation from around the date of death. You will need to seek a copy of any valuation report obtained by the executor or trustee or have the property valued yourself.
- If it is not a pre-CGT asset you will need to obtain details of all the related costs incurred by the deceased and the executor or trustee in relation to the asset such as purchase price, conveyancing or transfer fees. The executor or trustee should be able to help you with these details.
- If you have inherited a life estate or a remainder interest under the deceased’s will there will also be CGT consequences.
- You should consult a lawyer or financial advisor to find out how the rules apply in your specific circumstances.
View more Information on Tax & Superannuation