Tax Tip 83: CGT on Death and the Passing of Property

CGT on Death and the Passing of Property

Generally when a person dies and passes their property on to a beneficiary the transfer of title does not result in a CGT event. This is the case whether the property passes via a will or via the intestacy laws. It is also possible that CGT is avoided where a court orders change the distribution of a will or intestacy laws - e.g. a Family Provision matter. s128-20 of the Income Tax Assessment Act 1997 INCOME TAX ASSESSMENT ACT 1997 - SECT 128.20 When does an asset pass to a beneficiary?


Notice s128-20(d)(i) - this opens the possibility to transfer property to others by agreement without CGT. e.g. Mum dies leaving Investment Property to the son and the daughter gets the stamp collection. What if they want to swap gifts?


Most people would have the executor transfer the property to the Son and then the Son transfer to the Daughter, triggering both stamp duty and CGT. But by deed the son and the daughter can agree that the property will go straight to the daughter. Thereby avoiding the triggering of CGT until the daughter sells the property.


This does not even need to be approved by the courts, but there must be a deed evidencing it and there can be no payment - consideration is the waiver to make a claim against the estate.


see also TR2006/14 paragraphs 33 - 37.
http://law.ato.gov.au/atolaw/view.htm?DocID=txr/tr200614/nat/ato/00001

 

Issues like this can have substantial impact on Centrelink entitlements incl pensions, aged care etc. In recent case I saw Mum leave her joint interest in home to husband (in care) {Joint tenancy cant be avoided!}.

Her revised will gave all other assets eg shares and cash to her kids and not spouse. Centrelink saw this as asset deprivation and assessed Dad for gifting despite him being incapable of influencing the will !! Centrelink applied deeming to his pension assets / income....As he had dementia easy to argue he was not party to any gift and Mum exercised her common law rights. They revised their decision and his pension was restored.

Take care when dealing with pensionable persons. Centrelink should be consulted before acting.

 

Tip for CGT on death....

Taxpayers with accumulated CGT losses should dispose of shares etc to use that loss before death. On death these losses are lost. The typical scenario we see is an aged care client. With a decent portfolio of shares. Identify value of shares to be sold at a profit to offset the CGT loss and sell down while in aged care. We have seen some taxpayers with tens / hundreds of 000s of CGT losses available.

 

These sorts of things can be difficult to plan for, but they should be considered when appointing an enduring power of attorney. If a person is close to death their attorney can start to sell assets and withdraw superannuation as required - if they have the powers.