Tax Avoidance through death

Discussion in 'Accounting & Tax' started by [email protected], 23rd Oct, 2019.

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  1. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Terry has shared his wisdom here about tax evasion at the time of death with CGT benefits on two properties and more.

    Here are some more taxation death strategies.

    A working taxpayer who dies with accrued long service, annual leave etc will receive the leave entitlement to the deceased estate tax free. Technically its not income as a deceased person cannot earn income from work after the date of their death and the former taxpayer under their personal TFN only reports income received to the date of death. The deceased estate merely collects money owed. Unpaid salary at the date of death IS included in the final PAYG summary and is subject to tax as that time was already worked and earned. Collecting accrued leave is not income to the estate either as the estate cant work.

    If the employer pays out accrued sick leave (rather than real entitlements such as annual leave and LSL) this isnt included as tax free and may be paid as a death benefit ETP to the estate and is subject to tax.

    Some tax strategy for taxpayers who are terminally ill :
    1. DO NOT RESIGN. Take unpaid absence from work or sick leave. Immediately following death the employer should then discharge the leave due tax free.
    2. Apply for a death benefit payout for your super (and life cover !!) asap prior to actual death so that the super is not managed or decided by the trustee of the fund. This also may ensure all the taxable element is discharged and doesnt later affect adult child beneficiaries if that may be a factor. Death benefit payouts dont need a condition of actual death. If 2 medical officers certify death will occur within 6 months its sufficient for most funds to pay a full benefit.
    3. Claim all life insurances incl TPD asap with the medical opinions
    4. If the taxpayer has any accrued CGT or tax losses consider realising actual gains to use these up prior to death. They end on death. A inspecie transfer to a spouse is a strategy to consider after considering tax
    5. Get legal advice immediately prior to death. Many legal advisers will explain the costly probate issues if the deceased has bank accounts and assets. Discharging the estate assets prior to death may avoid this hidden death duty imposed through the court process of probate. A person with no assets may not need probate.
     
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  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    It pays not to take leave just in case. You have more chance of dying on a holiday anyway.
     
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  3. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    I have seen a super fund / insurer argue that you cant take TPD while employed. In that case a lawyer stepped in and they backed off. You can be employed but not working. And incapacitated.

    I'm finding more and more people engaging lawyers to sort out super death benefits. Yet many of are too slow at engaging a solicitor. They place faith in the fund when they should NEVER do this. Super Funds can be horrid. Yet another yesterday who made a beneficiary nomination to the fund to his kids years ago but he died with spouse and thought his will covered super. Fund is considering paying the kids bypassing the spouse. I had to explain that will doesnt operate that way and needs immediate legal advice. Now its with lawyers who are attacking the nomination as it was non-binding and lapsed and not a relevant factor for the trustee.
     
  4. Madcatters

    Madcatters Active Member

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    Great advice. I’m sure many look forward to putting this into action