Tax Tip 156: Death and Leaving Assets to Non-Residents and CGT

Death and Leaving Assets to Non-Residents and CGT


The general rules is that death does not trigger CGT. There is no CGT when title is transferred to the legal personal representative (LPR = executor or administrator) and there is no CGT triggered when the LPR transfers title to the beneficiary.

S 128-10 ITAA97 INCOME TAX ASSESSMENT ACT 1997 - SECT 128.10 Capital gain or loss when you die is disregarded


Example

Dave dies, and leaves a will appointing John as Executor. Dave leaves an investment property to Frank. Dave is the title holder, title is then changed to John. John administers the estate and then transfers title to Frank. None of these transfers triggers CGT.


But there are a few exceptions to the rule. One of which is where the beneficiary is a foreign resident. S 104-215(1)(c) ITAA97 INCOME TAX ASSESSMENT ACT 1997 - SECT 104.215 Asset passing to tax-advantaged entity: CGT event K3


This will trigger CGT event K3.

Luckily this only applies if the asset is not ‘taxable Australian Property’.

Taxable Australian Property is defined at s 855-15 ITAA97 INCOME TAX ASSESSMENT ACT 1997 - SECT 855.15 When an asset is taxable Australian property


Example

Dave dies without a will. Under the intestacy laws his assets pass to his son Frank. Dave has $500,000 worth of shares with a cost base of $100,000. Frank is an Aussie but now working in London and is a non-resident of Australia for tax purposes.



This will trigger CGT s104-215(1)(c). The deceased is deemed to have sold the shares just before he died., s104-215(3).



In this case Dave will make a capital gain of $400,000 less 50% discount etc.


Tips

a) Do a will, and

b) Make it flexible enough to avoid issues like to above

 

Never leave non-Australian property assets to a non-resident beneficiary. If the executor had powers to dispose of the shares and converts that to cash then no such CGT trigger occurs.

There can be other tax benefits too. If the estate had shares at a loss these may also be sold so that the gain is offset by a loss.

My other favourite - Dont die with a CGT loss that is carried forward. If you have a parent with past carried fwd capital losses and they still hold investments it may be wise to trigger some offsetting profits now. These tax losses are lost on death.

 

That would trigger CGT on the sale.

 

Yes - The trustee also has a tax free threshold that a non-resident does not and also scaled tax rates..... My point is less about the tax and the opportunity to offset losses, use better tax rates or even determine the timing of the CGT event at a price that suits.

The whole process of estate management is a complex process of tax issues that are often all overlooked or given scant regard. Everyone thinks of solicitors when it comes to wills but I believe for some people tax advice is equally important. Regrettably sometimes in haste for entitlements these things get missed, skipped or even just ignored.