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A woman calculating her inheritance tax

Inheritance Tax in Australia

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.

Tax Rates Three Years After Inheritance

Taxable Income From Inheritance

Tax Rates

Up to $416


Between $417 and $670

50% of the amount over the threshold

Between $671 and $45,000

$127.50, plus a rate of 19% on the excess over the threshold

Between $45,001 and $120,000

$8,550, plus 32.5 cents per dollar over $45,000

Between $120,001 and $180,000

$32,925, plus 37 cents per dollar over $120,000

Over $180,000

$55,125, plus 45 cents per dollar over $180,000

This is the point where you will need to weigh whether the additional taxes are worth holding onto an asset or whether selling would be more beneficial to your financial situation. 

If you inherit gifts, cash, shares or property, you do not have to pay a direct inheritance tax. But, you will need to pay CGT when you sell an asset at a profit. If you inherit a super death benefit you will likely need to pay tax. If you earn an income from any part of the deceased's estate, you are liable to pay tax. 

What about international inheritance tax? The majority of developed countries have some type of inheritance tax. Japan's inheritance tax is the highest in the world at a rate of 55%, while South Korea isn't far behind at 50%. The US and UK both use a rate of 40%, with France taxing inheritances at a rate of 45%. The majority of countries use a sliding scale based on the deceased estate's value. For example, the 50% tax rate in the US is only levied against assets valued over $11 million; in the UK it applies when the estate is valued at over £325,000.

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Planning For The Future 

While there is currently no inheritance tax in Australia, it's still important to plan for the future. Beneficiaries can face a significant financial impact once an estate has been distributed. So, there isn't an official estate tax, but there are taxes to think about. 

For example, there are potential taxes on superannuation inheritances. A surviving partner has an exemption from CGT when they receive the super fund payout. The rules are muddled when it comes to beneficiaries over the age of 18 or, who are not classed as dependents. This is when the super death benefit can be taxed. Unless the super is tax-free, a tax was paid on the fund's taxable component, or it's paid in an income stream or lump sum. 

It isn't a simple or straightforward subject, so when you plan your estate it is best to do so with the advice and guidance of a professional. It may cost you now, but it can save thousands of dollars down the line when it comes to capital gains on inherited property. 

As there is no specific inheritance tax, the assets inherited may be liable for income or capital gains taxes, dependent on the asset. If you are planning your estate, do so under the direction of a professional. With a testamentary trust, you can offset taxes liable on the estate. It will save your family stress and time and give you peace of mind now. 

For those looking to minimise their tax obligations, it's important to consider the type(s) of assets you will inherit, whether it's shares, gifts, properties, or cash. You will also need to consider the value of each asset, and how it will be paid as your tax obligations will change depending on whether it's a regular payment versus a lump sum. Your current financial situation will also play a role, based on your income, expenses and current tax obligations. If you start receiving an income from an inherited asset, it contributes to your taxable income, which could push you into a higher tax bracket.

How QuickBooks Taxes Can Help 

Though Australia doesn't have a specific inheritance tax, there are still tax implications on inherited assets. Planning for the future can mitigate the risk of higher taxes and evenly distribute your estate to your beneficiaries. 

Whether you have a capital gain or loss, planning and organisation are the keys to stress-free estate planning. It's important to understand your tax obligations, whether you have to pay inheritance tax on property or you have a long list of deductions to claim. Taxes in Australia can be a complicated subject, and with QuickBooks taxes, you can keep meticulous records, easily complete your return, file and pay tax. 

While every care has been taken to ensure the accuracy of the information presented as at 01 May 2023, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.

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