Tax Tips 132: Terminal Illness – tax aspects to Consider

Terminal Illness – tax aspects to consider

Read this in conjunction with my
Legal Tip 133: Terminal Illness – Legal Aspects to Consider Legal Tip 133: Terminal Illness – Legal Aspects to Consider

Some of the things to consider when suffering a terminal illness - from a tax perspective

Capital Losses
These are lost at death so any benefit off offsetting capital gains may not be available. It may be worthwhile considering whether to sell CGT pregnant assets now to use up the loss.

Capital Gains Tax
It may be advantageous to change your main residence to the investment property with the biggest gain as your main residence at death can be exempt from CGT for those inheriting it.

Superannuation
Super may be taken out tax free where there is a terminal illness. Depending on your circumstances dying and leaving superannuation benefits could see beneficiaries being taxed on part of your death benefits later.

Charitable Gifts
It may work out more tax effective if you give money to family and have them make a charitable gift so that they can claim the tax deduction.

Tax Forgiveness
The Commissioner of Tax has the power to forgive certain tax liabilities for serious hardship. S 340-5 Schedule 1 of Taxation Administration Act 1953 TAXATION ADMINISTRATION ACT 1953 - SCHEDULE 1 Collection and recovery of income tax and other liabilities

For more on debt relief and tax see PS LA 2011/17 PS LA 2011/17 - Debt relief (As at 3 July 2014)

HECS
Stop paying that HECS debt. Any debt is not collected after a person dies – other than in the final tax return.

Land Tax
This will vary from state to state, but generally there are shrot term concessions for the former main residence of a deceased person.

 

Some Life insurance (super policy and outside super) may be eligible for payout prior to death. Many policies contain terminal illness clauses which can (in very strict conditions) allow a person to receive a payout. Tax free.

However if the payout occurs after death and its a super policy this can result in substantial tax for adult child beneficiaries whether they receive a direct benefit or if its is paid through the estate. That can be avoided where the person is paid out prior to death.Then their estate has cash as an asset.

While it may seem tacky we strongly recommend all persons with short longevity have their financial and tax situation appraised prior to death esp where they have super, insurance and financial investments. I have been involved in many instances with "death bed" sales of property, shares etc. One saved $160K by selling substantial shares to offset CGT losses and another withdrew 100% of their $800K super the day prior to death to avoid a sole beneficiary paying tax.

 

related
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!