Inheriting of Capital assets from parents and loved ones is becoming a more common issue as many people are holding assets such as listed shares and property at the time of their deaths. Unfortunately, many beneficiaries of estates are unaware of the taxation consequences that will occur in the future due to this.
Traditionally most people would inherit cash from a deceased estate. This could be as a result of the sale of the deceased’s assets and the estate having paid outgoings and taxes applicable before making the distribution. In cases of inheriting cash investments there is generally no concern or tax implications to the beneficiary of the Will; they can simply take the funds and do with them what they wish.
In circumstance of inheriting direct investments, such as shares or property, there may be tax implications when the assets are disposed of. Importantly the beneficiary of the estate needs to determine when the deceased acquired the assets and the value of the assets at that time. If the deceased had come to have acquired the asset before 19th September 1985, the beneficiary is deemed to have acquired the asset at market value as at the date of death of the deceased.
If the asset had been acquired on or after 19th September 1985, the beneficiary will inherit the historical cost value of the deceased. The beneficiary therefore needs to ascertain the costs and date of acquisition for their own records to assist in meeting any future Capital Gains implications. The sooner this is done the better as there may be records of the deceased needed to to provide history for future. If left these details may be hard to acquire as time goes by as files are cleaned up and disposed of in winding up the deceased’s affairs and personal items. Examples of this may be shares which may have acquired from a public float versus broker acquisition or shares that have been participating in Dividend Re-Investment. If left for years,knowledge of the circumstance may be harder to find out.
Also important is the inheritance of properties that may have been the Primary Residence (home) of the deceased. If the property was the Primary Residence immediately before the death there is a period of time that the property can be sold free of capital gains tax.
If the assets acquired were previously used in the deceased’s business, there may also be further Capital Gains Tax reductions relating to the Small Business Entity concessions that in turn may result in significant tax savings. This again illustrates the need to, as soon as possible after being aware of an inheritance of a possible business related capital item, to confirm use of the assets in the past. This may require advice from your Accountant so as to be aware of possible issues.
In summary, should you ever be in a position of inheriting capital assets from an estate, seek accounting and taxation advice in a timely manner to ensure that the tax implications of a future disposal are minimised.