Australia doesn't have an Inheritance Tax, or does it?

Australian Inheritance Tax

Strictly speaking, Australia has no inheritance tax – however, the rules around the application of capital gains tax (CGT) for non-residents differ from those applying to resident Australians where there is an inheritance. As a general rule, capital gains tax (CGT) applies to any change of ownership of a CGT asset, unless the asset was acquired pre CGT (September 1985). However, special rules typically disregard any taxable capital gain or loss if, when a person dies, an asset they owned passes either directly or indirectly (via a legal representative) to their beneficiary.

From an expatriate's perspective though, you need to be aware that a big exception applies where the assets are passed to a beneficiary who is a foreign resident (i.e. non-resident for Australian tax purposes). In that situation, a CGT event is taken to have happened in relation to those assets at the time of the individual's death. These capital gains and losses are then taken into account in the deceased's final "date of death return".

Things that should be flagged:

  • Estate executors need to be made aware of this exception; they are legally responsible for producing the final tax return and making any appropriate tax payments. Even some Australian domestic tax agentsare not aware of these rules, much less executors, and it can constitute a significant liability.
  • In many situations, proper estate planning will avoid the immediate payment of CGT in these situations, and
  • Finally, remember that non-residents are no longer able to claim the 50% CGT discount - this can effect whether it is worthwhile hanging onto inherited Australian assets.