Australia Inheritance & Estate Tax Guide
Australian inheritance and estate planning taxation. The guide covers: the no inheritance tax (the "no death tax") — Australia does NOT have the inheritance tax (the "death duty") or the estate tax (the "estate duty"); the inheritance tax was abolished in Australia from 1 July 1979 (the "abolition of the death duties"); the beneficiaries do NOT pay the tax on the inheritance received; the estate does NOT pay the tax on the assets transferred to the beneficiaries; the CGT on the death (the "CGT implications of the death") — the death of the individual is the "CGT event" (the "CGT event K3" — the death of the owner of the asset); the CGT on the death is generally "rolled over" (the "CGT rollover" on the death) — the beneficiary is treated as the "acquirer" of the asset at the "deceased's cost base" (the "cost base of the deceased"); the rollover applies if: (a) the "legal personal representative" (the "executor") transfers the asset to the "beneficiary" (the "beneficiary" — the "legatee"), AND (b) the beneficiary is the "Australian resident" (the "resident beneficiary"); if the beneficiary is the "non-resident", the CGT may apply on the death (the "non-resident beneficiary CGT"); the testamentary trusts (the "testamentary trust") — the testamentary trust is the trust established under the "will" (the "last will and testament") of the deceased; the testamentary trust takes effect upon the death of the testator; the testamentary trust can: (a) provide the "asset protection" for the beneficiaries (the "protection from the creditors" and the "protection from the divorce"), (b) provide the "tax-effective distribution" of the income to the beneficiaries (the "progressive tax rates" for the minor beneficiaries — the testamentary trust income for the minor children is taxed at the "adult rates" (the "progressive rates") rather than the "minor rates" (the "penal rates" for the minors over the "unearned income" threshold of $416), (c) provide the "flexibility" in the distribution of the capital and the income; the CGT on the estate assets (the "CGT and the estate") — the estate assets are held by the "legal personal representative" (the "executor" or the "administrator") on behalf of the estate; the executor can dispose of the estate assets (the "sale of the estate assets") and may be liable for the CGT; the executor must obtain the "TFN for the estate" (the "estate TFN") and lodge the "trust tax return for the deceased estate" (the "trustee of the deceased estate tax return"); the estate income (the "net income of the deceased estate") is taxed at the "trustee of the deceased estate tax rates" (the "individual rates" — the same as the individual rates but without the tax-free threshold for the first 3 years from the death); the estate planning strategies — the common estate planning strategies in Australia include: (a) the "preparation of the will" (the "will" — the "simple will" or the "complex will" with the testamentary trusts), (b) the "enduring power of attorney" (the "EPA" — the "enduring power of attorney" for the financial decisions), (c) the "enduring guardianship" (the "enduring guardianship" for the medical and the personal decisions), (d) the "binding death benefit nomination" (the "BDBN" — the nomination of the superannuation death benefit beneficiary), (e) the "superannuation death benefit" (the "superannuation death benefit" — the "tax-free" for the "tax-dependent beneficiaries" — the spouse, the children under 18, the financial dependents; the "taxable" for the "non-tax-dependent beneficiaries" — the adult children, the estate), (f) the "insurance inside the superannuation" (the "life insurance" held inside the superannuation fund — the "death benefit" is paid tax-free to the dependents), (g) the "family trust" (the "inter vivos trust" — the trust established during the lifetime for the asset protection and the tax planning). All amounts in Australian Dollars (AUD). For related reading, see our Superannuation Guide → and Capital Gains Tax Guide →.
No Inheritance Tax — What Applies?
- No death duties: Australia abolished the inheritance tax (the "death duty") in 1979. The beneficiaries do NOT pay the tax on the inheritance. The estate does NOT pay the tax on the assets transferred to the beneficiaries. The "probate fees" (the "court fees" for the grant of the probate) are the only costs — the probate fees vary by the state (up to $10,000 for the large estates in some states).
- CGT rollover: The CGT on the death is generally rolled over to the beneficiary. The beneficiary inherits the asset at the "deceased's cost base" (the "cost base of the deceased"). The beneficiary pays the CGT when the asset is disposed of by the beneficiary. The "death" itself does NOT trigger the CGT for the Australian resident beneficiaries.
For the testamentary trusts and the estate planning with the superannuation, see our Superannuation Guide →.
Superannuation Death Benefits
- Tax-dependent beneficiaries: The superannuation death benefit paid to the "tax-dependent beneficiaries" (the "spouse", the "children under 18", the "financial dependents", the "interdependent") is tax-free (the "tax-free component" + the "taxable component" — the "taxable component" is tax-free if paid to the tax-dependent beneficiary).
- Non-tax-dependent beneficiaries: The superannuation death benefit paid to the "non-tax-dependent beneficiaries" (the "adult children", the "estate") is subject to the tax at the rate of 15% plus the 2% Medicare levy (the "tax on the taxable component — the element taxed in the fund") or 30% plus the 2% Medicare levy (the "tax on the taxable component — the element untaxed in the fund").
For the binding death benefit nomination (the "BDBN") and the SMSF death benefit planning, see our Superannuation Guide →.