05 August, 2018 / IN Wealth management / by Kurt Purkiss
In this world nothing can be said to be certain, except death and taxes

It is not uncommon that a beneficiary of an estate receives an inheritance and then gifts part or all of the inheritance to their children.

While it is true that in Australia there is no inheritance or estate taxes that apply after someone passes away, where the beneficiaries often get caught out is through gifting part of their inheritance after it has been received from the estate. This can have two outcomes that will affect the beneficiary financially through:

  1. Capital gains tax, and
  2. Reduction in the aged pension.

Mary was the sole beneficiary of her husband’s estate. As part of the estate she received a share portfolio valued at $100,000 which her husband purchased 20 years earlier for $40,000. After receiving the shares she gifted them to her son Matthew.

The gifting of the shares triggered a capital gains tax event and Mary had to pay tax on $30,000, being 50% of the profit realised on the gifting of the shares.

Not only this, but the pension she was receiving was also reduced.


Could this outcome have been avoided?

Yes

How?

Mary could have disclaimed her inheritance of the share portfolio and then arranged for the shares to pass to Matthew as part of the estate. This would have achieved the same outcome without triggering tax or reducing her pension.

The timing of this is crucial and you should speak to your advisors to make sure that the capital gains tax and the Centrelink gifting provision are not triggered.