An often overlooked issue when preparing a Will is the applicability of any taxes when the estate is distributed.
While inheritance tax or death tax does not apply in Queensland, other federal and state taxes such as Capital Gains Tax and Transfer Duty (Stamp Duty) can affect your estate.
When preparing your Will, It is important to discuss with your lawyer and financial planner the appropriate estate planning strategies that will minimise any applicable taxes related to your assets and the effect they may have on your beneficiaries.
Capital Gains Tax
Capital Gains Tax (CGT) in Australia essentially revolves around the concept of a ‘CGT event’. CGT events are the different types of transactions that may result in a capital gain or loss, for example when an asset such as property is transferred.
When it comes to a Will, a CGT event can arise in several instances:
- If your Will directs that a particular property is to be sold upon your death, then a CGT event will arise and your Estate will be liable for any applicable capital gains tax. An exemption will apply however in the event that:
- The property is your primary residence; and
- The beneficiary disposes of its ownership interest of the property within two (2) years of your death;
- If your Estate Will directs that a particular property is to be transferred to a nominated beneficiary, then a CGT event will arise when your beneficiary subsequently transfers the property. Please note, however, that the acquisition price for the CGT event is calculated from when you acquired the property, not when your beneficiary receives it; and
- If your Will directs distribution of property to a foreign resident (known as a non-resident beneficiary) then the normal CGT rollover of assets to beneficiaries does not occur and a taxable CGT event takes place. The taxable capital gain is calculated based on the market value of the assets transferred to the non-resident beneficiary, less its CGT cost base. This can be a problematic issue when dealing with a blended class of beneficiaries (i.e. residents and non-residents) because the estate is assessed for the CGT, which may unfairly reduce the estate assets available for distribution to all residual beneficiaries of the estate.
Stamp Duty and Land Tax
In relation to stamp duty in QLD, a general exemption applies to properties being transferred to beneficiaries pursuant to the terms of a Will. However, any subsequent transfers will attract stamp duty. For example, consider a situation where your Will directs the sale of your family home for the specific benefit of one of your children. Another of your children may wish to purchase the property (it is, after all, the family home). Stamp duty will be payable on the sale of the property from your Estate to that child.
Land tax will also be paid out of your estate, so it is important that the administrator of your estate obtains a land tax clearance certificate before transferring any property to a beneficiary. This will confirm that all land tax is up to date and that the property is clear of any previous land tax assessments, penalties and interest.
Get Help from Experienced Lawyers
Whilst inheritance tax is not payable in Queensland, you should make sure that your Will effectively provides for your intended estate planning objectives.
Should you want some advice in this regard, or should you have any concerns about the applicability of capital gains tax or stamp duty on your estate, please do not hesitate to contact our Will & Estate lawyers.
Content by Anthony Kyle