Inheritance typically comes with a slew of mixed emotions. With considerable personal loss and emotional distress, you may also find yourself in a different financial position upon receiving a sudden windfall.
But this wealth brings questions. Namely, ‘do you pay tax on inheritance in Australia?’
You will also likely wonder what to do with inheritance payouts, particularly when they come from different financial assets, such as property, stocks, bank accounts, and so on.
In this piece, Aspire2 Wealth Adviser Nathan Torre explores the topics surrounding whether inheritance is taxed in Australia and offers some insights that may help you maintain a better financial position.
Is Inheritance Taxed in Australia?
Inheritance is no longer taxed in Australia. Since the abolition of federal estate taxes in 1979, and the subsequent eradication of state ‘death duties’ by 1982, beneficiaries have not been taxed on the value of the assets they inherit. Those considering estate planning can hold the peace of mind that their assets won’t be diluted through taxes when passed on to their children, charities, friends, wider family, or any other beneficiaries.
With that said, we must emphasise that while inheritance is not taxed in Australia, this does not exempt the revenue generated from inherited assets from taxation.
Are There Any Tax Obligations on Assets Inherited?
Capital Gains Tax When Selling Inherited Assets
The introduction of Capital Gains Tax (CGT) in 1985 brought a significant change. While inheriting an asset is not taxable, the profit from selling that asset may be. Notably, there is a two-year exemption from CGT for inherited properties, provided they are sold within this period.
For any beneficiaries considering liquidating inherited assets, working within this time frame could potentially save you considerable amounts in exempt taxes.
Again, while there is no direct tax on the inherited asset itself, any income derived from it is subject to tax.
Your sole source of income may have previously been through your employment. Now that you legally own assets such as investment properties delivering rental payments or shares rearing periodic dividends, the Australian Taxation Office will see this additional income stream. The income tax is then calculated based on the revenues generated from these assets from the time of the original owner’s death, alongside your existing income sources.
Superannuation and Inheritance
Superannuation Death Benefits
As superannuation has been in place across Australia for several decades, it is possible that the accumulated amounts in someone’s account will not be entirely utilised at the time of their passing.
In Australia, a superannuation death benefit is a payment from a super fund to the deceased’s dependents or estate trustee. It is generally tax-free for dependents, which the Australian superannuation system identifies as the deceased’s partner, children, or anyone financially reliant on them at the time of death.
Can I Put Inheritance Into Superannuation?
Injecting an inheritance into your superannuation is a viable option for those looking to bolster their retirement planning. By making a personal contribution or contributing on behalf of your spouse, you can increase your super balance. It is important, however, to stay within the annual cap on contributions to avoid exceeding the legal limits.
- Enhanced Retirement Savings: Allocating inheritance to your super can significantly increase your financial reserves for retirement.
- Diverse Investment Opportunities: Super funds typically offer a variety of asset classes for investment.
- Tax Efficiency: The superannuation environment benefits from a concessional tax rate of 15% on investment earnings, which may be more favourable than personal investment taxes, depending on individual circumstances.
- Streamlined Costs: Super funds often have straightforward fee structures, whereas direct investments can incur additional costs such as stamp duty and brokerage fees.
- Government Contributions: For those on lower incomes, the government may boost your super with co-contributions under certain conditions.
- Access Restrictions: Superannuation funds are essentially locked away until you meet conditions of release, like reaching a certain age or retiring.
- Contribution Caps: Legislative caps limit the amount you can contribute to your super before incurring additional tax.
- Total Balance Cap: Individuals with a super balance exceeding $1.9 million face additional taxes on contributions, which could diminish the tax effectiveness of this strategy.
How Long Does it Take to Get Inheritance Money Australia?
The process of obtaining inheritance money in Australia can be lengthy, often raising concerns about how long it takes to receive it. The timeframe varies based on the estate’s complexity and can range from several months to over a year. Beneficiaries should prepare for potential delays and seek professional advice to expedite the process.
Estate Planning & Tailored Tax Advice: Preparing for the Future
With the knowledge that there is no inheritance tax in Australia, individuals should focus on estate planning to ensure their wishes are carried out efficiently, and their beneficiaries are well-informed about their potential tax obligations on future income or capital gains from their inherited assets.
Tax laws are subject to change, and personal circumstances can significantly affect tax obligations. It is advisable for individuals, especially non-resident Australians, to seek professional tax advice to navigate the complexities of inheritance-related taxes effectively.
For more information on inheritance, estate planning and personalised taxation advice in Australia, please speak with our professionals at Aspire2 Wealth Advisers today.
Book a no-obligation Inheritance consultation with Nathan.
This content contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser (Aspire2 Wealth Advisers, 08 9322 7028), and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investments. Please contact us if you want more information.