Death duties were abolished in NSW from 31 December 1981, and death duties on the estates of people who died on or before that date are no longer payable. However, stamp duty may apply to gifts of property under a will where a transfer document or instrument (for example, a share or land transfer form) has been drawn up. The document or instrument must be stamped by the Commissioner of Stamp Duties and a maximum amount of $50 is charged. Share transfer forms in respect of companies listed on the stock exchange are no longer liable to duty and do not have to be marked as exempt from duty by the Office of State Revenue. Stamp duty is still payable on transfers of shares in unlisted companies.
Commonwealth estate duty has not been imposed since 1 July 1979.
If the deceased was receiving a taxable income at the time of death, the estimated tax debt or credit should be included in their list of assets and liabilities, and a tax return should be lodged with the Taxation Office. If the administration of an estate continues over a long period, the estate may itself become a tax-paying entity, with a tax file number and responsibility for submitting annual tax returns.
If the deceased was registered for goods and services tax (GST), a final GST return must be lodged and GST paid to the date of death. If a business is continued after the death of an owner or partner, accounting advice should be sought.
Capital gains tax
Capital gains tax is not payable when an asset passes to an executor, administrator or beneficiary, unless the beneficiary is a tax-exempt body such as a charity or, in certain circumstances, a non-resident beneficiary.
For the purposes of capital gains tax, the asset is deemed to have been acquired by the executor or administrator at the deceased's date of death. The value of the asset at the deeming date is:
- if the deceased acquired the asset before 20 September 1985 -- market value
- if the deceased acquired the asset on or after 20 September 1985 -- the deceased's cost base (a formulation which includes incidental costs involved in acquiring and disposing of assets).
Capital gains tax may be payable:
- when an executor or administrator sells an asset
- where the beneficiary is a tax-exempt body or is not a resident of Australia
- where a beneficiary sells an asset after acquiring it from an estate.
The information provided here is only a basic summary of capital gains tax issues, which are very complicated. If you have any doubts about its implications for an estate, you should consult the legislation (which is very complex) or seek professional advice.
Capital gains tax and the deceased's main residence
A person's main residence is usually not subject to capital gains tax. However, implications arise on the death of the owner.
In these circumstances, a dwelling is exempt from capital gains tax if:
- the beneficiary or trustee disposes of the residence within two years of the death of the deceased, or
- before the disposal, the dwelling was the main residence of:
- the beneficiary (if it is the beneficiary who disposes of the residence)
- the deceased's spouse (if living with the deceased on a permanent basis)
- a person who has a right of occupancy under the will.
Dwelling acquired after 20 September 1985
If the dwelling was acquired by the deceased on or after 20 September 1985, then for the exemption to apply, the dwelling must also have been the deceased's main residence immediately before their death and not have been used to produce income at that time.
The situation is complicated if a beneficiary is given a life interest in the main residence in a will. Professional advice should be sought in that situation.
If a dwelling is likely to attract capital gains tax, it is most important to keep all records relating to the acquisition. Records should be kept for at least five years after the disposal of an asset.
Because of the complexity of this issue, it is also very advisable to seek professional advice.
People often leave all or part of their estate to a tax-exempt body. These are organisations that do not have to pay income tax; they include:
- public hospitals
- religious or charitable institutions
- superannuation funds
- approved deposit funds.
Capital gains tax may be payable on assets left to tax-exempt bodies where the assets were acquired by the deceased on or after 20 September 1985. The deceased is considered to have disposed of the assets to the tax-exempt body for current market value immediately before death. Any capital gain or loss is taken into account in the tax return, which declares income up to the date of death. The deceased's estate bears tax on any capital gain on assets. This is a qualification on the general rule that there is no deemed disposal of an asset on the death of a person. Professional advice should be sought if you are an executor of an estate where a beneficiary is a tax-exempt body.