CGT implications for beneficiaries of Australian deceased estates

This is particularly important in cases where the estate involves any or all of the following: non-resident beneficiaries, offshore assets, or the person has died without leaving a will.

Ordinarily, in Australia, when a person dies a capital gain or loss that arises from the passing on of a Capital Gains Tax (CGT) asset (e.g. a property) to beneficiaries of the estate is disregarded. Instead the CGT consequences are deferred until the beneficiary disposes of the asset(s).

However, there is an exception to this rule that applies to non-taxable Australian property (e.g. property located outside of Australia) that passes to a non-resident, owned by an Australian resident just before their death. Broadly, a capital gain is made if the market value of the asset on the day the person dies is more than what the person paid for the asset.

Where such offshore assets are involved, the laws of deceased estates of multiple jurisdictions could apply. Double taxation could, for example, arise where a property of the deceased estate is located outside Australia and that property is bequeathed to a nonresident. Australia would tax the capital gain on the property upon its transfer to the non-resident. The local jurisdiction could also seek to tax the capital gain on the transfer of the property.

This situation can become further complicated if a person dies without a will. In this scenario, tax law would follow intestacy law. It is worth considering these issues ahead of time, as there may be planning points to ensure beneficiaries of these estates achieve the best outcomes.

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