Welcome to the Friends with Money podcast, brought to you by Money Magazine, creating financial freedom for Australians since nineteen ninety nine.

Welcome to the Friends with Money podcast, brought to you by Money Magazine, creating financial freedom for Australians since nineteen ninety nine.

Hello and thanks for joining us for another episode of Friends with Money, money Magazine's podcast to help you earn, save, and achieve your financial goals. My name is Tom Watson, a senior journalist here at Money Magazine, and as always, it is a pleasure to be with you. Three point five trillion dollars. That's the amount of money that NAB estimates will flow down from older younger Australians over the next decade as part of what it describes as the largest intergenerational wealsh transfer in the country's history. So as many Australians give and receive inheritances in the years to come, what do they need to know about how inherited money and other assets are taxed. Well, that's exactly what we are going to dig into on today's episode of Friends with Money, and to help guide us along the way, I'm very pleased to say that we are joined by well very much a friend of the podcast at this point, a regular Money contributor and the director of tax Communications at H and R. Block Mark Chapman, Mark, welcome back to Friends with Money.

Hello and thanks for joining us for another episode of Friends with Money, money Magazine's podcast to help you earn, save, and achieve your financial goals. My name is Tom Watson, a senior journalist here at Money Magazine, and as always, it is a pleasure to be with you. Three point five trillion dollars. That's the amount of money that NAB estimates will flow down from older younger Australians over the next decade as part of what it describes as the largest intergenerational wealsh transfer in the country's history. So as many Australians give and receive inheritances in the years to come, what do they need to know about how inherited money and other assets are taxed. Well, that's exactly what we are going to dig into on today's episode of Friends with Money, and to help guide us along the way, I'm very pleased to say that we are joined by well very much a friend of the podcast at this point, a regular Money contributor and the director of tax Communications at H and R. Block Mark Chapman, Mark, welcome back to Friends with Money.

Good morning, Top.

Good morning, Top.

How are you very well?

How are you very well?

Mark?

Mark?

And I? I hope you're well as well. And we've got a really interesting topic to dig into today. But I guess the first thing I wanted to clear up right up top, there's no specific inheritance tax. Inheritance, as I should say, in Australia, is their mark, like there is in some other countries.

And I? I hope you're well as well. And we've got a really interesting topic to dig into today. But I guess the first thing I wanted to clear up right up top, there's no specific inheritance tax. Inheritance, as I should say, in Australia, is their mark, like there is in some other countries.

No, there isn't. So I actually say, unlike other countries like the UK, where there are state taxes inheritance taxes which are payable on death, they do not exist here in Australia, and therefore the tax consequences basically flow down the line. So typically when the acid is actually ultimately disposed of by the beneficiaries, then there's a tax consequence, but there's no tax consequence from inheriting the assets per se.

No, there isn't. So I actually say, unlike other countries like the UK, where there are state taxes inheritance taxes which are payable on death, they do not exist here in Australia, and therefore the tax consequences basically flow down the line. So typically when the acid is actually ultimately disposed of by the beneficiaries, then there's a tax consequence, but there's no tax consequence from inheriting the assets per se.

I was about to say, let's finish the episode closer there or doneanduscid. No I needs to know anything else. That's very straightforward, But no, that is as you said, that is not the case. We don't have an inheritance tax, but there are other tax implications. So as you said, Mark, that's not saying that someone who inheritance so nassets won't be taxed.

I was about to say, let's finish the episode closer there or doneanduscid. No I needs to know anything else. That's very straightforward, But no, that is as you said, that is not the case. We don't have an inheritance tax, but there are other tax implications. So as you said, Mark, that's not saying that someone who inheritance so nassets won't be taxed.

What taks are we talking about here, Yeah, so we're talking typically about capital gains tax. Now, the law is structured in such a way that there isn't any capital gains tax on the actual death itself. That's what's called a rollover, and the capital gains tax is effectively deferred. However, that deferral actually crystallizes, if you like, when the asset is actually disposed of by the beneficiary, and therefore, typically on the disposal of the asset, gainst tax liability will arise that the you know, based on the difference between the proceeds of sale and the base cost. Now, the proceeds are just what you sell the asset for. The real question is what is the base cost? And I'm sure as we get further into the podcast, we can talk about that in relation to specific assets.

What taks are we talking about here, Yeah, so we're talking typically about capital gains tax. Now, the law is structured in such a way that there isn't any capital gains tax on the actual death itself. That's what's called a rollover, and the capital gains tax is effectively deferred. However, that deferral actually crystallizes, if you like, when the asset is actually disposed of by the beneficiary, and therefore, typically on the disposal of the asset, gainst tax liability will arise that the you know, based on the difference between the proceeds of sale and the base cost. Now, the proceeds are just what you sell the asset for. The real question is what is the base cost? And I'm sure as we get further into the podcast, we can talk about that in relation to specific assets.

Mark, as you said, I think the best way to add to lay this out for everyone is to go through some examples. So let's start with property, if that's okay with you. Say, someone inherits their you know, their family home from their parents, as well as you know, perhaps and investment property that their parents may have owned. Will they be up for a tax bill on both of those properties.

Mark, as you said, I think the best way to add to lay this out for everyone is to go through some examples. So let's start with property, if that's okay with you. Say, someone inherits their you know, their family home from their parents, as well as you know, perhaps and investment property that their parents may have owned. Will they be up for a tax bill on both of those properties.

Yes, So in relation to the investment property, they'll be for a CDT bill based on the difference between the proceeds when they ultimately sell it and the base cost. Now, the base cost depends on when the property was actually originally acquired. So if the property was originally acquired before the twentieth of September nineteen eighty five, which was the date that CDT was introduced, you simply take the market value of the property at the date of death as the base cost. So all the gain which has been accrued before that before the date of death is basically not taxed. However, if the property has been acquired since the twentieth of September nineteen eighty five, which you know it probably will will have done, the base cost is actually the original acquisition cost to the deceased, you know, the price that they paid for it. So that's the capital gains on an investment property. In relation to the family home, well, basically the main residence exemption could well be available there, and that coul well exempt the family home not just to the deceased, but also to the relatives who inherit the family home. So basically the rule is that provided dwelling is sold within two years of the date of death, then the main resktance exemption applies fully to the property. It is possible to extend that two year period where there's some sort of problem in meeting the two year condition, you know, for example, where the will is challenged or settlement of the contract, settlement of the contract is delayed or falls through for reasons outside the taxpayers control. But basically that two year window is reasonably firm unless one of those exemptions apply. Or the other situation where the full main resistance exemption applies is where the dwelling is actually occupied by somebody under the terms of the will for the entire period from the date of death until the settlement date when the dwelling is eventually sold. So, for example, say the property passes to the taxpayer's daughter, who is given the right to occupy that property as her main residents as well, and she then lives there for a further ten years, then the main residence exemption applies for the entire period and the property is completely tax free.

Yes, So in relation to the investment property, they'll be for a CDT bill based on the difference between the proceeds when they ultimately sell it and the base cost. Now, the base cost depends on when the property was actually originally acquired. So if the property was originally acquired before the twentieth of September nineteen eighty five, which was the date that CDT was introduced, you simply take the market value of the property at the date of death as the base cost. So all the gain which has been accrued before that before the date of death is basically not taxed. However, if the property has been acquired since the twentieth of September nineteen eighty five, which you know it probably will will have done, the base cost is actually the original acquisition cost to the deceased, you know, the price that they paid for it. So that's the capital gains on an investment property. In relation to the family home, well, basically the main residence exemption could well be available there, and that coul well exempt the family home not just to the deceased, but also to the relatives who inherit the family home. So basically the rule is that provided dwelling is sold within two years of the date of death, then the main resktance exemption applies fully to the property. It is possible to extend that two year period where there's some sort of problem in meeting the two year condition, you know, for example, where the will is challenged or settlement of the contract, settlement of the contract is delayed or falls through for reasons outside the taxpayers control. But basically that two year window is reasonably firm unless one of those exemptions apply. Or the other situation where the full main resistance exemption applies is where the dwelling is actually occupied by somebody under the terms of the will for the entire period from the date of death until the settlement date when the dwelling is eventually sold. So, for example, say the property passes to the taxpayer's daughter, who is given the right to occupy that property as her main residents as well, and she then lives there for a further ten years, then the main residence exemption applies for the entire period and the property is completely tax free.

Right. Okay, that actually all makes sense to me so far. Which is which is a great mark. Let's move on to another example. Then, are a couple of examples and talk about some other assets. So for things like shares or superannuation or I guess cash savings, could the same CGT implications apply.

Right. Okay, that actually all makes sense to me so far. Which is which is a great mark. Let's move on to another example. Then, are a couple of examples and talk about some other assets. So for things like shares or superannuation or I guess cash savings, could the same CGT implications apply.

Well, I mean if we look at those categories in detail. I mean starting off with cash, which is the easy one because cash is not a cgty asset and therefore there's no capital gains tax on a cash inheritance, so you don't need to worry about that. You can go out there and spend the cash without worrying about the tax consequences. So cash is the straightforward asset. Shares basically the same rules I've just talked about in relationship properties apply. There will be a capital gainst tax liability on the ultimate disposal of the shares, So when the person who's inherited them sells them again, the base cost is either going to be the acquisition cost or the date of death, depending on when the shares were acquired, so you know there will be a tax liability. Superannuation is probably the slightly trickier now. As a general rule, death benefits which are paid to dependents are completely tax free, so the superannuation passes to the dependence completely tax free. So what is a dependent, Well, a dependent includes a surviving spouse or de facto spouse, a former spouse or de facto spouse, a child of the deceased who's under age eighteen, any other person who was financially dependent on the deceased, or any person who had an interdependency relationship with the deceased. So for example, an adult child who is in some way disabled and is completely reliant on the deceased to look after them, so they are all dependent, so they get the superannuation tax free. However, anybody else is classified as a non dependent, so for example brothers, sisters, parents, adult children, they will normally be taxed at non dependent rates and they vary between fifteen and thirty percent, So there will be a tax liability if you're non dependent and you're receiving superannuation, but if you're a dependent, it'll be it'll be tax free.

Well, I mean if we look at those categories in detail. I mean starting off with cash, which is the easy one because cash is not a cgty asset and therefore there's no capital gains tax on a cash inheritance, so you don't need to worry about that. You can go out there and spend the cash without worrying about the tax consequences. So cash is the straightforward asset. Shares basically the same rules I've just talked about in relationship properties apply. There will be a capital gainst tax liability on the ultimate disposal of the shares, So when the person who's inherited them sells them again, the base cost is either going to be the acquisition cost or the date of death, depending on when the shares were acquired, so you know there will be a tax liability. Superannuation is probably the slightly trickier now. As a general rule, death benefits which are paid to dependents are completely tax free, so the superannuation passes to the dependence completely tax free. So what is a dependent, Well, a dependent includes a surviving spouse or de facto spouse, a former spouse or de facto spouse, a child of the deceased who's under age eighteen, any other person who was financially dependent on the deceased, or any person who had an interdependency relationship with the deceased. So for example, an adult child who is in some way disabled and is completely reliant on the deceased to look after them, so they are all dependent, so they get the superannuation tax free. However, anybody else is classified as a non dependent, so for example brothers, sisters, parents, adult children, they will normally be taxed at non dependent rates and they vary between fifteen and thirty percent, So there will be a tax liability if you're non dependent and you're receiving superannuation, but if you're a dependent, it'll be it'll be tax free.

There's a great explanation, mark thank you that that makes it nice and straightforward. Aside from I guess that the more typical assets that we talked about, you know, the property, cash and the like, it's obviously not uncommon for people to inherit in other valuables, you know, like jewelry or watch or perhaps even I guess had that piece of art that has some value to it. So what's the deal with items like these? Is the ato likely to come knocking as well? Ah well, it kind of depends, you know. If we're talking about a work of art or a piece of jewelry, for example, they could be classified as a collectible asset. Now, collectibles are.

There's a great explanation, mark thank you that that makes it nice and straightforward. Aside from I guess that the more typical assets that we talked about, you know, the property, cash and the like, it's obviously not uncommon for people to inherit in other valuables, you know, like jewelry or watch or perhaps even I guess had that piece of art that has some value to it. So what's the deal with items like these? Is the ato likely to come knocking as well? Ah well, it kind of depends, you know. If we're talking about a work of art or a piece of jewelry, for example, they could be classified as a collectible asset. Now, collectibles are.

Subject to CDT where the original cost was five hundred dollars or more. However, where the cost was five hundred dollars or less, a collectible is actually going to be exempt from CDT. So somebody might have bought a watch, but might aboard, say a piece of jewelry for say two hundred dollars. They've then died and passed it on to somebody else, who then ultimately sells it for one thousand dollars. Now that will that item will be a collectible. The cost was less than five hundred dollars, and therefore the whole thing is CGT free to the to the person who inherited it. However, if the cost of that collectible was was greater than five hundred dollars, then unfortunately, that CGT exemption doesn't apply and it would be liable for CGT. In relation to cars, including classic cars vintage cars, they are completely exempt from CGT, so you don't need to worry about it. If you inherit you know you're or your parents vinted Rolls Royce for example, you've got a potential windfall because it can be sold completely tax free. The argument being that cars basically are a depreciating asset. You almost always sell them for less than you bought them for, and therefore they're excluded from capital gains tax to prevent people from getting a capital loss. However, in relation to those vintage cars, they don't actually depreciate, they appreciate. However, the same rules apply, so vintage cars are completely tax free. In addition, if you inherit some kind of personal personal use item such as you know, your parents' furniture or electrical goods, household items, things like that, they are exempt from capital gains tax provided the asset originally cost less than ten thousand dollars, So you know, it is very much a case of it depends in relation to those kind of kinds of assets there could be or they might not be. It really depends on the original cost of the asset, if it was a personal use asset or a collectible.

Subject to CDT where the original cost was five hundred dollars or more. However, where the cost was five hundred dollars or less, a collectible is actually going to be exempt from CDT. So somebody might have bought a watch, but might aboard, say a piece of jewelry for say two hundred dollars. They've then died and passed it on to somebody else, who then ultimately sells it for one thousand dollars. Now that will that item will be a collectible. The cost was less than five hundred dollars, and therefore the whole thing is CGT free to the to the person who inherited it. However, if the cost of that collectible was was greater than five hundred dollars, then unfortunately, that CGT exemption doesn't apply and it would be liable for CGT. In relation to cars, including classic cars vintage cars, they are completely exempt from CGT, so you don't need to worry about it. If you inherit you know you're or your parents vinted Rolls Royce for example, you've got a potential windfall because it can be sold completely tax free. The argument being that cars basically are a depreciating asset. You almost always sell them for less than you bought them for, and therefore they're excluded from capital gains tax to prevent people from getting a capital loss. However, in relation to those vintage cars, they don't actually depreciate, they appreciate. However, the same rules apply, so vintage cars are completely tax free. In addition, if you inherit some kind of personal personal use item such as you know, your parents' furniture or electrical goods, household items, things like that, they are exempt from capital gains tax provided the asset originally cost less than ten thousand dollars, So you know, it is very much a case of it depends in relation to those kind of kinds of assets there could be or they might not be. It really depends on the original cost of the asset, if it was a personal use asset or a collectible.

I'm still imagining a Rolls Royce part in my parents' garage nationally the Toyota Corolla. But yes, it's very very much imagining that, not much based on reality. There I one question I did have, which is probably you know, quite quite relevant for a lot of people out there. How does it work if something you know, like a property is being split between multiple parties for instance, you know a group of siblings, Is the tax burden just split equally if and when the property is sold?

I'm still imagining a Rolls Royce part in my parents' garage nationally the Toyota Corolla. But yes, it's very very much imagining that, not much based on reality. There I one question I did have, which is probably you know, quite quite relevant for a lot of people out there. How does it work if something you know, like a property is being split between multiple parties for instance, you know a group of siblings, Is the tax burden just split equally if and when the property is sold?

Yes, it basically yes, It kind of depends. So if the property is sold as a whole by the estate and the proceeds are simply split up between the various beneficiaries, then the sale of the property will itself trigger a capital gains tax liability in the estate, and therefore that will have to be paid, which will leave less cash available for the ultimate beneficiaries, so they will therefore pocket less of thee of the actual proceeds. However, where it's simply the ownership of the property itself, which is being passed on when the property isn't being sold, then yes, the year the tax liability is simply split between the various beneficiaries and they will pay tax at their own marginal rate based on their share of the property when it's ultimately it comes time to sell a property.

Yes, it basically yes, It kind of depends. So if the property is sold as a whole by the estate and the proceeds are simply split up between the various beneficiaries, then the sale of the property will itself trigger a capital gains tax liability in the estate, and therefore that will have to be paid, which will leave less cash available for the ultimate beneficiaries, so they will therefore pocket less of thee of the actual proceeds. However, where it's simply the ownership of the property itself, which is being passed on when the property isn't being sold, then yes, the year the tax liability is simply split between the various beneficiaries and they will pay tax at their own marginal rate based on their share of the property when it's ultimately it comes time to sell a property.

Mark. As we begin to wrap up, I think it's important to get a little bit more advice from you, because I think while you've done an excellent job explaining, doesn't make it really straightforward. They are obviously going to be questioned for people, and there are subtleties and little bits of differences here and there. So what kind of I guess professionals might people want to seek out for advice on this topic, and then how might those professionals I guess be able to help people.

Mark. As we begin to wrap up, I think it's important to get a little bit more advice from you, because I think while you've done an excellent job explaining, doesn't make it really straightforward. They are obviously going to be questioned for people, and there are subtleties and little bits of differences here and there. So what kind of I guess professionals might people want to seek out for advice on this topic, and then how might those professionals I guess be able to help people.

Yeah, well, I think that the simple answer is that you need to speak to a tax advisor for advice on the tax implications, and indeed you need to speak to a lawyer to deal with any illegal questions surrounding the will, et cetera. You know, particularly speaking to a qualified tax advisor is very useful because, as we've just established, kink some complications in the legislation depending on when the asset was bought, whether it's pre CDT post CDT. You know, are the assets exempt from CDT in some way which can make it very difficult to work out your actual tax liability. So therefore, speak to a tax advisor and they will be able to work out your tax liability for you without any of the stresses brains of trying to do it to yourself. In addition, obviously it is very sensible to have some legal advice in relation to inheritance, so it is worth while speaking to a lawyer or solicitor. Yes, I advise it very much. Seems the way to go if you need it. I'm sure I would definitely rely on that if I was in this situation. I think we've ticked off a ton already today. Mark, So thank you so much for joining us and giving us such a great run through of part of the world that is inheritance and tax.

Yeah, well, I think that the simple answer is that you need to speak to a tax advisor for advice on the tax implications, and indeed you need to speak to a lawyer to deal with any illegal questions surrounding the will, et cetera. You know, particularly speaking to a qualified tax advisor is very useful because, as we've just established, kink some complications in the legislation depending on when the asset was bought, whether it's pre CDT post CDT. You know, are the assets exempt from CDT in some way which can make it very difficult to work out your actual tax liability. So therefore, speak to a tax advisor and they will be able to work out your tax liability for you without any of the stresses brains of trying to do it to yourself. In addition, obviously it is very sensible to have some legal advice in relation to inheritance, so it is worth while speaking to a lawyer or solicitor. Yes, I advise it very much. Seems the way to go if you need it. I'm sure I would definitely rely on that if I was in this situation. I think we've ticked off a ton already today. Mark, So thank you so much for joining us and giving us such a great run through of part of the world that is inheritance and tax.

It's always a pleasure to have you on, so we'll look forward to getting you back on the show.

It's always a pleasure to have you on, so we'll look forward to getting you back on the show.

Soon, no problem. Thanks Tom and goodbye.

Soon, no problem. Thanks Tom and goodbye.

That's it for this episode of the Friends of Money podcast, But don't forget to jump on our website moneymag dot com dot au. For your daily dose of financial news, or you can go grab yourself any copy of the latest edition of Money Magazine in all good news agents. As always, Friends of Money, you'll be right back in your podcast feed next week, so until then, my name is Tom Watson.

That's it for this episode of the Friends of Money podcast, But don't forget to jump on our website moneymag dot com dot au. For your daily dose of financial news, or you can go grab yourself any copy of the latest edition of Money Magazine in all good news agents. As always, Friends of Money, you'll be right back in your podcast feed next week, so until then, my name is Tom Watson.

Goodbye for now, thanks for listening to the Friends with Money podcast. For credible, independent and easy to understand financial commentary, visit moneymag dot com au. Please remember that the views and opinions expressed in this podcast are general in nature, and further independent advice and research based on your personal circumstances should be sought before making an investment decision.

Goodbye for now, thanks for listening to the Friends with Money podcast. For credible, independent and easy to understand financial commentary, visit moneymag dot com au. Please remember that the views and opinions expressed in this podcast are general in nature, and further independent advice and research based on your personal circumstances should be sought before making an investment decision.