Does Australia have a Death Tax?

Unlike some countries, Australia does not impose taxes on inheritances or deceased estates. Assets can be directly transferred to the individuals named in the legal will without involving taxation authorities. Thus, we can that there are no death taxes in Australia.

Outstanding Tax Obligations After Death

While there are no specific death taxes, there is still an obligation to settle taxes related to ordinary earnings and investments if the deceased person has any. 

A tax return must be filed if the deceased individual had tax withheld on their income in the year they passed away or if their taxable income exceeded the tax-free threshold of $18,200. 

In cases where the deceased was a sole trader or operated a business, additional obligations such as pay as you go withholding (PAYG) or business activity statements (BAS) may apply. 

Furthermore, any outstanding debts owed to the tax authorities should be settled using the assets from the deceased estate.

Contacting the Tax Authorities

The will’s executor (or administrator) is responsible for administering the deceased estate. The tax authorities recognizes the executor or administrator as the legal representative of the deceased person’s estate. 

While it is commonly assumed that a spouse or immediate family member can handle all tax-related matters for the deceased, they may not have the authority to deal with the account unless they are named as an authorized contact. 

In most cases, the executor is the appropriate person to contact the tax authorities, as they possess automatic legal standing.

Hidden Death Taxes 

Although no direct taxes are imposed on death, family members need to understand specific tax rules to avoid substantial tax bills.

Superannuation: Tax Implications

When a person passes away, and their superannuation is transferred to a non-dependent, such as their children, the tax authorities imposes a 15% tax on the taxable portion of the superannuation balance. 

For example, if Richard’s superannuation balance is $400,000, of which $300,000 is taxable, the tax authorities will tax that $300,000 at 15%, resulting in $45,000 being withheld. This means that Susan and John, Richard’s adult children, will receive $45,000 less in their inheritance.

There are ways to avoid or minimize this 15% tax potentially, but the options depend on individual circumstances.

Discussing the complete financial situation with a tax agent as one approaches the later stages of life is crucial. This helps ensure that wealth is passed on to beneficiaries effectively upon death.

Capital Gains Tax (CGT) 

Capital Gains Tax (CGT) is another tax that should be considered. CGT is levied when an individual sells an asset, such as shares or investment property. 

In many cases, the family home in which the deceased person lived is passed on to the beneficiary named in the will, often a spouse or other family member. If the recipient decides to sell the inherited home, they may be liable to pay CGT on the sale proceeds.

Capital Gains Tax Exemptions for Inherited Homes

Regarding inherited homes, there are specific rules regarding Capital Gains Tax (CGT) exemptions in Australia. These exemptions vary depending on the date of inheritance and the subsequent use or sale of the property.

Here’s what you need to know:

Dwelling Inherited After 20 August 1996 and Bought on or After 20 September 1985

• Main Residence Use: If the inheritor uses the dwelling as their primary residence, any capital gain or loss upon its eventual sale is disregarded for tax purposes.

• Sale Within Two Years: If the inheritor sells the dwelling within two years of inheriting it, any capital gain or loss is also disregarded for tax purposes.

Dwelling Inherited Before 20 August 1996

• Main Residence Use: For homes inherited before 20 August 1996, CGT is only disregarded if the property was used as the main residence by the person who inherited it.

It is important to note that these exemptions apply to capital gains and losses taxation. However, other tax obligations, such as stamp duty or land tax, may still apply depending on the circumstances. 

Contacting the Tax Authorities

The will’s executor (or administrator) is responsible for administering the deceased estate. The tax authorities recognizes the executor or administrator as the legal representative of the deceased person’s estate. 

While it is commonly assumed that a spouse or immediate family member can handle all tax-related matters for the deceased, they may not have the authority to deal with the account unless they are named as an authorized contact. 

In most cases, the executor is the appropriate person to contact the tax authorities, as they possess automatic legal standing.