Most countries worldwide require their citizens to pay the inheritance tax when they receive property or money from a deceased’s estate. Every country has a different tax slab regarding the inheritance tax, and the citizens must abide by it. For instance, Japanese citizens pay the highest inheritance tax, that’s 55% of the property. Korea closely follows with 50%. Many countries exempt their citizens from the inheritance tax, and Australia is one of them. Australian citizens do not have to pay the inheritance tax if they receive property or money as a beneficiary after the death of a dear one. However, there are still other taxes that the beneficiary must pay after receiving the deceased’s estate.
In this article, we will learn more about the inheritance tax in Australia and how to save money when receiving an estate.
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What is Inheritance Tax?
The inheritance tax is a tax that the federal government levies when someone inherits the property and money of a deceased. If you must receive the property given to you according to the deceased’s Will, you will first have to pay the taxes, and then only can you call the property your own.
Is there an Inheritance Tax in Australia?
Not every federal government wants to levy inheritance taxes, and the Australian government is one of them. Since the abolishment of the inheritance tax in 1981, Australia doesn’t require its citizens to pay the inheritance tax on the deceased’s property.
Though there is an exemption from the inheritance tax in Australia, there are still some taxes the beneficiary is liable to pay. These are-
Estate Tax
The words inheritance tax and estate are often used interchangeably, but these are of different meanings. The inheritance tax is the one that the federal government levies from the beneficiary when they receive the deceased’s assets. However, the estate tax is the one that is levied on the estate during the probate application in NSW or elsewhere.
Simply put, the executor or administrator must pay the estate tax before they transfer the estate to the next of kin. At the same time, the inheritance tax is a fixed amount one must pay the government before inheriting the property.
Capital Gain Tax
The beneficiary will have to pay income tax on the income earned from the property and capital gains tax or CGT on the proceeds when selling an inherited property. For example, if a beneficiary inherits a house and rents it for some time, that source of income should be reported as income on the tax return. If the beneficiary sells the property, they must pay capital gains tax.
Inheritance of shares and real estate may also be subject to capital gains tax. Capital gains tax is the difference between the asset’s purchased value and the amount received when sold. Capital gains tax calculation depends on whether the deceased acquired stock or property before 1985 from the inheritance. They do not have to pay capital gains tax if he sells the property within two years.
Superannuation Fund
If the person who invested in the retirement fund dies and issues a binding death benefit nomination, the fund proceeds go directly to the nominee. A beneficiary who inherits a deceased person’s pension may have to pay taxes on those funds. A surviving spouse does not pay tax on a deceased partner’s pension, but the same exemption does not apply to non-dependents.
The superannuation tax is dependent on the following factors-
- Whether the beneficiary is a dependent
- Whether benefits are paid as a lump sum or as a stream of income
- Whether the superannuation assets are taxable or non-taxable
- Whether the superfund has already paid tax on the taxable portion
- The beneficiary’s and deceased’s age at the time of death.
Stamp Duty
Another prominent tax that the government may levy from the beneficiaries or executors is stamp duty. Whenever any property inheritance is transferred, the beneficiaries or administrators may have to pay the stamp duty.
How Can I Minimise My Inheritance Tax Liability?
There are a few steps that you can take to minimise your inheritance tax liability:
Make sure that your Will is up-to-date: This will help ensure that the assets are distributed according to the deceased’s wishes and that loved ones don’t have to pay unnecessary taxes.
Give gifts: You can give away assets during your lifetime without incurring inheritance taxes. However, there are strict rules, so it’s important to seek professional advice before proceeding.
Create a trust: Trusts can be used to minimise both income tax and capital gains tax liabilities. They can also protect your assets from creditors during bankruptcy.
Use insurance: You could take out insurance policies that cover your loved ones for any inheritance taxes they may otherwise have had to pay.
Concluding Words
If you’re an Australian resident and inherit property or money from a deceased estate, you can rest assured you will not have to pay a considerable share to the government. Though inheritance taxes aren’t applicable in Australia, the inheritance is liable for inheritance tax; there are yet other indirect taxes that may affect the heritage. You can minimise liability by ensuring that your Will is up-to-date, giving gifts during your lifetime and taking out insurance policies. Also, connect with an attorney from the quick wrap of your case and avoid paying higher taxes.
Contact Probate Consultants, Australia’s best probate services, to apply for your probate grant and transfer the property to deserving heirs without an issue. We have a dedicated team that works to ease the procedures for you and help to save on taxes.
Executors or beneficiaries looking for guidance on preparing documents and applying for probate, feel free to contact us at 1300 561 803 or email us at [email protected].