tax Tip 160: Another Tax Reason not to Invest in your Own Name

Another Tax Reason not to Invest in your Own Name



If there is a loss and the person dies the loss is basically lost.

If the investment vehicle was a trust or a company both would continue under new control if the person behind them died.



No one plans to make a loss or to die but they do happen.



Example

Homer is doing a development on an investment property in his own name. He makes a capital loss on completion of $100,000. He dies of a heart attack brought on by the pressures of realising his taxable income hasn’t been reduced by the loss.


His son Bart is the executor and winds up the estate and does the last tax return. Homer had no other investments which could have been sold to offset the loss. Homers capital loss is of no benefit to anyone now.


Had Homer used a trust for the development the trust may still have had the capital loss but Bart, or another family member, could have taken control of it and its carried forward loss (meeting the carried forward loss rules) and then made further investments in that trust which could have been used to offset the loss.

 

We recommend all terminally ill people or unwell old people review their tax losses. You can be surprised how many have c/fwd tax losses and huge numbers of shares sitting with a large profit. eg CBA

One a year or two back sold his full holding down to take a $400K CGT loss to Nil. Died a few days later. Sole beneficiary (daughter) did most of the work and saved a mint.

Its tacky but when you consider the tax benefit its worth the effort.

 

Its a terrible time to be worrying about the tax implications when approaching death. But it needs to be done.

 

And one to avoid is the deceased transferring title to (any) property just prior to death. Terry or another lawyer can explain the myriad of reasons it can become a problem. I have been asked about this by many clients chasing a way to bypass a will they cant change and I refuse to give advice and insist they get legal and tax advice from a lawyer. Many people either get clarity or lack of clarity as they approach end of life.

Issues of elder abuse, mental capacity etc all mean the adviser becomes a walking taregt.

 

Also, living and caring family members can be made to feel like criminals.

When my mother was diagnosed with a terminal disease last year, we suggested she update her Will, EPA and AHD.

Her solicitor made us feel like grubs and really stressed out Mum. This was the last thing we wanted to do.

In the end we got the job done but it wasn't easy or nice.

 

Wow, that's awful, by the solicitor... we have a saying, "what you give around will come back to you around"!

 

you should not have any contact with the solicitor in a situation like this.

 

I understand what you are saying but Mum was 88, she had limited time, she wanted to make changes and she wanted my sister and myself to assist her through it.

What does a loving son and daughter do? Refuse to do the right thing? Just ignore her? Couldn't do that!!!

We understood the solicitor would need to do all of her checks and we expected/demanded her to do that.

But, I thought under the legal system, one was considered innocent until proven guilty. We felt we were judged to be guilty and there was no way/mechanism we could prove otherwise.

Only through consistent persistence, did we achieved what our mother wanted.

 

You could have taken her to the solicitors and/or made the appointment and there is no problem with that, but shouldn't be present when someone is giving instructions especially if being a major benefiicary. If you are then there could be issues of allegations of undue influence.

 

That was exactly what we did. But we were still made to feel like a grub and a criminal. I thought the solicitor was over the top with her checks.

Mum did NOT enjoy the experience; nor did we.

 

Hi @Terry_w @Paul@PAS

it's an old post but it has become relevant to me just this year as an executor.

Terry, you mentioned in the example "Homer had no other investments which could have been sold to offset the loss". Do you mean that if there were other assets with a capital gain, could the executor sell them after death to use the brought forward loss?

I think the answer is no and after the date of death the unapplied losses are gone even if a gain is realised during the wind up of an estate, but I'd enjoy being proven wrong on that

 

Tax Tip 281: Sale of Assets at death at a Loss – What a Waste! Tax Tip 281: Sale of Assets at death at a Loss – What a Waste!

 

No. A taxpayer has a TFN that dies with them on their date of death. The executor may arrange a final date of death return. However any CGT losses at the point end. After the date of death the executor may apply for a Estate tax file number. No CGT losses exist in that new entity.

The sole upside is in the year of death a deceased person and their estate have TWO tax free thresholds.