Will the government take a slice of your estate when you die? Death duties were abolished in 1978 – right? Nothing to worry about? Maybe.
Australia is one of the few developed countries not to have an inheritance tax. Treasurer Scott Morrison, when asked in 2015, would not rule out introducing an inheritance tax in Australia. However, that is not the focus of this article. Despite there being no inheritance tax in Australia, your estate may be subject to taxation after you die.
Capital gains tax applies where assets are sold or transferred. Gains made on the difference between the sale price and the purchase price are taxed (unless an exemption applies). Beneficiaries under a Will pay capital gains tax when the investment assets of the deceased are sold. When assets are sold and the proceeds divided between the beneficiaries, capital gains tax will be payable by the estate unless an exemption applies to the asset (for example, a residence or assets acquired before 1985).
Where an Australian executor distributes assets under a Will to beneficiaries living overseas, the executor is liable to pay the capital gains tax liability on behalf of the overseas beneficiary. The rate of tax is currently 45%! If the executor does not withhold funds from the distribution to pay the tax, they will have to pay the tax out of their own pocket!
If you were not born in Australia, your assets could potentially be subject to the inheritance tax of your country of birth. For example, the estates of citizens of the United States of America, but resident in Australia, can be subject to the worldwide coverage of American inheritance tax. The USA is not the only country that has inheritance taxes with a worldwide reach. For example, France and Germany have laws that could potentially levy tax on the Australian assets of Australian residents.
If you have assets physically located in countries that have an inheritance tax, those assets may be subject to that country’s tax laws.
Whilst not a “tax”, the forced heirship rules that apply in many countries, can have an impact on the distribution of the estates of Australian residents, where they have assets overseas.
Estate planning and the administration of deceased estates can become very complex where there are investment assets, and where you, or your beneficiaries, have not lived all your lives in Australia. Hidden taxes can apply. Executors can find themselves liable for if they distribute state assets in ignorance of the of taxation laws.
If any of the above circumstances happen to apply to you, it is crucial for you to obtain specialist advice.
If you would like to obtain advice on whether your estate will be subject to any inheritance tax, or you are an Executor for an estate where death duties may apply, please contact us to arrange an appointment.