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

It is important to think about the potential tax issues that could arise upon your own death. A little bit of planning can save the family lots of money.

One issue with dying is that any tax losses that you have will be wasted. Normally capital losses and income losses can be carried forward and can be used in future years to reduce tax. When you are dead there are no future years – as you will not be lodging any more tax returns or earning more income other than what is recorded in your final tax return.

Example

Borat has all of his assets in shares. The cost base was $1mil and now they are worth $600,000 with recent drops in value. Borat drops dead from Corona Virus.

His will instructs the executor of his will to sell everything and give the proceeds to his niece and nephew in equal shares.

When the executor sells the shares a loss of $400,000 will be realised.

This loss is next to useless as it will not benefit anyone.


Had Borat left the shares directly to the niece and nephews they could have sold them (or hung on) and realised the losses themselves and then these capital losses would have carried forward until they were either used up or lost on their death.

Another alternative may have been a TDT Will or a will incorporating a Testamentary Discretionary Trust

 

More than once have I given advice to older people with terminal illness to realise gains and losses for the ultimate wash sale. One saved $200K in tax. and literally passed before the sales settled assisting his daughter financially by $200K. Many older aussie with shares will hold the profitable ones and also sit on unrealised losses too as they are often averse to selling

 

related
Tax Tip 132: Terminal Illness – tax aspects to Consider Tax Tips 132: Terminal Illness – tax aspects to Consider