When it comes to estate planning, you need to factor in the tax implications your beneficiaries may face when inheriting your assets. Inheritance tax is a particularly important consideration.
The principle of inheritance tax is that a deceased person's estate is subject to a tax levy. Australia does not currently have an inheritance tax, whatever state or territory you live in. However, there are tax obligations if your inheritance produces income.
- Capital Gains Tax CGT: If a beneficiary chooses to sell the property they inherited, they are subject to pay Capital Gains Tax on the profit.
- Rental Income: If an investment property is inherited, any income is subject to tax from the date of death.
- Estate Income: An estate can continue to generate income until the estate is finalised by the executor. Any income the estate generates should be included in the relevant tax returns.
If there is a super fund, the nominated beneficiary who receives the super death benefit may be liable for taxes. The entitlement and how much you're liable for depends on whether it's tax-free, a lump sum or the beneficiary is a dependent.
Ultimately, the amount of tax you pay on what you inherit will depend on how much you earn from any assets you inherit. Additionally, it changes depending on how much time has passed. For example, your income for the first three years is taxed at individual rates and counts toward your tax-free threshold of $18,200. When the first three years are up, you will pay additional tax rates.
