Save
Is inheritance tax applied in Australia?
Death duty was abolished in Australia under the Fraser government in 1979. This means beneficiaries are not required to pay inheritance tax when they receive an asset resulting from the death of an individual or estate. However, this doesn’t mean that beneficiaries of an inheritance are fully exempt from Australian taxes.
Is inheritance tax applied in Australia?
Death duty was abolished in Australia under the Fraser government in 1979. This means beneficiaries are not required to pay inheritance tax when they receive an asset resulting from the death of an individual or estate. However, this doesn’t mean that beneficiaries of an inheritance are fully exempt from Australian taxes.
Inheritance can still trigger certain Australian taxes depending on the asset(s) and beneficiary’s circumstances.
Here’s what you need to know about death benefits and taxes.
How are beneficiaries taxed on inheritance?
There is no inheritance tax or death duty in Australia but the Australian Taxation Office (ATO) says that taxes may still apply depending on the type and source of inherited asset and the beneficiary’s relationship with the deceased.
For instance, shares portfolios and other assets are subject to normal capital gains tax (CGT) rules while inherited properties may trigger a part or full CGT if they sell the property. If the beneficiary only acquires the inherited property, they are usually exempt from CGT but stamp duty may apply for the transfer of ownership.
Beneficiaries who are dependants of the deceased (i.e., spouse, offspring below 18 years old and financially dependent offspring up to 25 years old) may be exempt from tax but non-dependants must pay tax on any asset they inherit.
Are beneficiaries taxed on life insurance death benefits?
Beneficiaries may be taxed on their inheritance if the death benefit will come from a life insurance. However, taxation will depend on two things:
- Whether the deceased owns the policy (i.e., they took out the insurance themselves); and,
- Whether the insurance policy was held within or outside a superannuation fund.
Ownership is important because the insurance money will be returned to the owner regardless of the insured’s nomination if the insured isn’t the policy owner. If the insured and policy owner are the same individual, the death benefit will be paid out to their beneficiaries according to their will.
For life insurance held outside super, nominated beneficiaries of deceased policy owners are generally exempt from tax.
For insurance held within super, the death benefit is paid to the member’s estate and taxed depending on the beneficiary’s relationship with the owner-insured. Death benefits are only tax-free for dependants and financially dependent offspring under the age of 25.
For non-dependant beneficiaries, the taxable and untaxed element of the death benefit will first be included in the deceased estate’s assessable income and taxed at a maximum of 15 per cent and 30 per cent, respectively. Only the net death benefit will go to the non-dependant beneficiary.
Are beneficiaries taxed on super death benefits?
Similar to life insurance benefits, taxation on super death benefits depend on the beneficiary’s relationship to the deceased and the component the benefits will come from and whether the money will be received as a lump sum or income stream.
As a general rule, dependants don’t pay tax the tax-free component of the death benefit regardless of how they will receive it (lump sum or income stream). For the taxable component, the death benefit may be taxed at the beneficiary’s marginal tax rate with an offset of up to 15 per cent, depending on the ages of both beneficiary and deceased.
Non-dependants are also exempt from paying tax on the tax-free component of super paid out as a death benefit lump sum or income stream. However, the taxable component may only be received as a lump sum and the applied tax rate will depend on whether the money has already been taxed within super.
- If the fund has paid tax on the amount, the effective tax rate is the lower rate between 17 per cent and the beneficiary’s tax rate.
- If the fund did not pay tax, the effective tax rate is the lower rate between 32 per cent or the beneficiary’s marginal tax rate.
Does beneficiary tax apply to inheritance?
Beneficiary tax has nothing to do with inheritance. This tax and the beneficiary tax offset only applies to certain Commonwealth education allowances and Centrelink benefits, such as the Austudy payment and farm household allowance.
About the author
About the author
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...Read more
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure. ...Read more
Tax saving
Government rebuffs regional allowance and tax concession reform
A review’s findings into the viability of area tax concessions and payments for regional and remote Australians has had its recommendations shut down by the same government who requested the report...Read more
Tax saving
Penalties for tax fraud in Australia
Public taxes are used to fund government projects in relation to health, defence, infrastructure and many other national and local projects that require public funding. ...Read more
Tax saving
5 tips as tax deadline looms
Australians are being warned that they have just two weeks left to get their finances in order if they have not posted a tax return yet. ...Read more
Tax saving
ATO warns businesses of JobKeeper scam
The ATO is warning the community about a JobKeeper scam which is asking members to enter personal information. ...Read more
Tax saving
Why fast-tracking tax cuts won’t stimulate the economy
Treasurer Josh Frydenberg has flagged that previously legislated tax cuts could be moved forward in a bid to help stimulate the Australian economy. ...Read more
Tax saving
Last-minute items to check off before 30 June
With the end of the financial year almost here, an accounting firm has outlined key changes with tax returns this year and flagged some last-minute tax strategies to consider before 30 June. ...Read more
Tax saving
Australia’s richest owe the Tax Office $772m
Australia’s elites and private companies fell $772 million in taxes due to miscalculations and deliberate tax avoidance, the Australian Taxation Office has revealed. ...Read more
Tax saving
Do you have to pay taxes on a trust?
Trusts are usually set up for business, estate planning and investment purposes to separate the legal and beneficial ownership of assets held within the structure. ...Read more
Tax saving
Government rebuffs regional allowance and tax concession reform
A review’s findings into the viability of area tax concessions and payments for regional and remote Australians has had its recommendations shut down by the same government who requested the report...Read more
Tax saving
Penalties for tax fraud in Australia
Public taxes are used to fund government projects in relation to health, defence, infrastructure and many other national and local projects that require public funding. ...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
