Join Australia's most dynamic and respected property investment community

Tax Tip 138: GST and Death

Discussion in 'Accounting & Tax' started by Terry_w, 22nd Jun, 2016.

Tags:
  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    GST and Death

    If a person is registered for GST and they die there could be adjustment issues as death causes their GST registration to be cancelled.


    Example

    Doug is a handyman and operates as a sole trader. He had just purchased a ute for $19,000 on 30 June 2016 and claimed back $1,727 in GST.

    Unfortunately, Doug dies on 30 July 2016, sadly not getting to use his new ute too much.


    Doug’s will leaves all his vehicles to his sister Claudia. The ute’s value is considered to be $17,000 GST inclusive and since there is a disposal the GST claimed will have to be paid back to the ATO in part.

    The adjustment calculation will be 1/11 x 100% (business use) x $17,000 = $1,545

    The executor of the estate will be liable to pay back this amount, $1,545, to the ATO.

    Who ultimately wears this cost will depend on the terms of the will. It may come out of residue of the recipient of the gift may find any taxes go with the gift – but this will depend on the wording – is this a tax, maybe not.


    The situation would have been different had Doug been operating the business through a company or trust as these would keep going if he died. However, if the person who took control of the company or trust caused the car to be sold a similar outcome would have resulted.
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    Importantly the executor of the estate may not need to register for GST as the estate does not expect to make taxable supplies in the course of an enterprise. Perhaps no adjustment can be made ?

    Many issues arise on death that cannot be completed by the deceased. That is also why CGT doesnt actually apply to death.

    ATO acknowledges that a GST adjustment on death of a sole trader is not required here
    Adjusting for assets retained after cancelling GST registration | Australian Taxation Office
     
  3. willair

    willair Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    1,717
    Location:
    Brisbane..
    What would happen if Doug who maybe works under the abn system as a sole trader,also had a small equities set-up all in his name..
    And i asked this question to a lot of different people some legal some accountants ,do the shares just transfer into the wife name or does this trigger GST,i asked the question too the accountant who bought out the previous accountant a few months ago,and said he was unsure,the previous one long term said no,and the more i read about wills the more one would want to have a rock solid one set-up..
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Will by 'equities' do you mean shares? There is no GST on shares.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,045
    Location:
    Sydney
    Paul, that link says no need to adjust if the executor or a beneficiary continuing the business.
     
    willair likes this.
  6. willair

    willair Well-Known Member Premium Member

    Joined:
    19th Jun, 2015
    Posts:
    1,717
    Location:
    Brisbane..
    Thanks Terry,yes blue chip equities that,s what i thought,plus not trying to slip a freebee question under the carpet...
     
  7. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,400
    Location:
    Sydney
    Do you mean capital gains tax (CGT) ?
    On death, shares are an estate asset. The will (if there is one) or rules of intestacy setout what happens to the shares. If they transfer to the spouse (or any beneficiary) the CGT rules apply and the beneficiary inherits them with the cost base determined by tax law.

    There is no GST applicable to shares.
     
    willair likes this.