If you have been appointed to administer a deceased estate, it is important to consider the application of Capital Gains Tax (CGT) when disposing of estate assets. CGT can vary depending on a number of factors, including the type of assets involved and the timeframe in which the estate is administered.
An executor (or administrator) may need to sell or transfer estate assets to beneficiaries as part of their role in administering the estate. There can be advantages and disadvantages of selling and transferring assets, which should be considered carefully during this process.
CGT applies when an asset is disposed that is subject to CGT, known as a CGT event. There are a number of factors to consider in determining whether CGT applies, including:
Whether the asset was acquired before 20 September 1985, when CGT was introduced. Assets acquired before this date are exempt from CGT.
Whether a property was the deceased’s principal place of residence. A CGT exemption may apply in these circumstances, including if a beneficiary sells the property within 2 years of the deceased’s death.
Whether the deceased had shares or investment properties – CGT generally applies to the sale of shares and investment properties, unless a relevant exemption applies.
There are other factors and exemptions that may apply in your circumstances.
If an executor sells an asset as part of the administration of an estate, the estate will be assessed for CGT when a tax return is filed on behalf of the estate. Whilst the proceeds can then be distributed to the beneficiaries as a gift, the overall value of the estate may be reduced by the application of CGT. As deceased estates are treated as individuals for tax purposes for the first three years, there may be benefit in selling assets over the course of that period to take advantage of the tax free threshold.
In the alternative, an executor may transfer estate assets to beneficiaries in specie (in its current form). This means no CGT is immediately payable on the transfer, but will rollover and apply to any future sale of the asset. As such, it is important to consider CGT before transferring specific assets to beneficiaries, particularly shares and other investments.
It is recommended to seek legal and accounting advice before administering a deceased estate. If you would like to discuss your situation and how we can assist you, please contact us today on (02) 6225 7040 by email info@rmfamilylaw.com.au or get started now online.
Author: Amy Davis