Death is inevitable, and many people want to leave something behind for their loved ones. This is especially true for parents who are always thinking about their children. Unfortunately, if this matter is not handled correctly, the bereaved can face taxes that can significantly affect how much they will receive as beneficiaries.
While alive, it’s thus essential to be aware of how inheritance is taxed in Australia and other critical factors that can impact your life-long savings and investments.
What Is an Inheritance Tax?
Inheritance tax is a charge or imposed tariff against the value of your property or estate. Most countries have fixed taxes requiring beneficiaries to pay inheritance tax before receiving their share of a deceased’s estate.
Is Inheritance Taxed in Australia?
Australia doesn’t impose or have any inheritance tax in any of its territories. This means that the government and Australian law will not touch the deceased’s entire estate.
The only time there might be exemptions to this rule is if the executor of the will advises you otherwise. But you should not worry about inheritance tax if you inherit any of these assets:
- Cash
- Gifts
- Properties
- Shares
Though you may be free of inheritance tax, there can still be tax obligations that must be settled under certain circumstances.
As the beneficiary of an estate, the overall value of your inheritance may be impacted by:
#1. Capital Gains Tax or CGT
Capital gains tax is applicable when you sell or dispose of an asset to gain profit. For example, if you receive income from an asset you rent out or use to produce taxable income.
#2. Super Death Benefits
The recipients and trustees of the deceased will have to pay and settle income tax on any stepping-down payouts they receive from the estate.
The amount of income tax that needs to be settled is variable and impacted by:
- If, under the taxation law, you are the deceased’s dependent
- If the assistance was paid as an income stream or as a lump sum
- If the super is taxable or tax-free
- If the deceased has already paid the tax before their death
- The age of the deceased when they died and your age
- Gross income from the estate of the deceased
Also, if you are considered a non-resident beneficiary, the tax you need to pay will be significantly based on the agreement between your country of residence and Australia.
How Much Money Can You Receive Without Paying Inheritance Tax in Australia?
There is no official inheritance tax in Australia. Again, it is only applicable in specific situations. If you must pay taxes, the amount to be deducted from your overall inheritance varies. One thing for sure is it will be subjected to income tax or capital gain taxes.
To minimize the taxes you need to pay, you can seek the assistance and guidance of a professional who can look into your tax obligations and determine what can be reduced or even removed.
Some factors that you can discuss to help minimize your tax obligations are:
#1. The type of asset/s that you inherited or will inherit
If you can, you have to be specific about what kind of assets you will inherit, like cash, gifts, properties, or shares.
#2. The overall value per asset.
#3. The way the asset is paid.
This is either a lump sum payment or a regular payment.
#4. Your current financial condition.
Your monthly and breakdown expenses, income, and other tax obligations will be assessed.
What Percentage Is the Inheritance Tax in Australia?
To identify how much tax you need to pay once you inherit an income-generating asset, you will need to consider how much you’re earning from it and the length of time since the deceased has passed.
During the first three years, the tax you will pay when you inherit whatever asset is stipulated to you will be taxed at an individual income tax rate. This is the tax that you pay as an individual.
Similar to your individual income tax, the estate will be granted a tax-free threshold based on profits.
After three years, if the estate continues to be administered, applicable taxes will apply and need to be fulfilled.
Do Australians Need To Declare Inherited Properties Located Overseas?
Is inheritance from overseas taxed in Australia? No, they aren’t, and they don’t need to be declared to the government unless the executor says otherwise.
Australia Generally Doesn’t Impose Inheritance Taxes
In Australia, inheritance tax does not exist. What exists, however, are other tax obligations the beneficiary must pay based on the kind of inheritance they receive.
By involving a professional when the will is prepared, you can be at peace knowing that your loved ones won’t have to go through the unnecessary burden of processing taxes once you’ve passed.
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