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There have been talks in the news recently about introducing an Inheritance Tax in Australia. Danielle Wood, chief of the Productivity Commission has sparked this discussion by urging the current government to implement an inheritance tax to address intergenerational inequality.

There are claims that an inheritance tax would shift some of the tax burden off younger members in society and onto wealthier older Australians given the Productivity Commission estimates that by 2050 Australian baby boomers (i.e., those born between 1946 and 1964) will pass on around $220 billion in inheritance every year.

What is an inheritance tax?

Inheritance tax is sometimes referred to as “death duties” and refers to the tax paid by the estate of a deceased person.

How is inheritance currently taxed in Australia?

Currently, Australia does not have inheritance tax. In some instances, capital gains tax (CGT) is the trigger in the event of an owner’s death and in some instances, there is the taxation of superannuation benefits.

Whilst Australia does not have a dedicated inheritance tax, beneficiaries may still have tax obligations such as:

  • If you receive an asset through a Will, you are not required to pay tax on the value of the asset unless the asset generates an income.
  • Likewise, if you are gifted a property and subsequently sell the property then you may be required to pay capital gains tax. There is an exception to this if the estate sells the property within two years of the death of the person.
  • The beneficiary is a non-tax resident. A common example is when a parent dies and their child is living and working overseas.
  • If you inherit a death benefit from a superannuation account and are not a tax dependant, then you may be required to pay tax.

Do countries around the world still have inheritance taxes?

Interestingly, Australia used to have a federal estate tax, but this was abolished in 1979. By 1982, all states in Australia had removed all “death duties”.

Inheritance Tax still exists in countries such as the United Kingdom, Germany, France, Japan, South Korea, Greece, Belgium, and Denmark. However, many countries along with Australia have removed inheritance tax laws including New Zealand, Canada, Singapore, Malaysia, Mexico, and Norway.

Will Australia introduce a dedicated inheritance tax?

There are currently no formal proposals about an Australian inheritance tax law and discussions surrounding the topic have followed a speech delivered by Ms Wood’s on 30 August 2023 in her capacity as the chief executive of Grattan Institute think tank before she was appointed to lead the Productivity Commission on 6 September 2023.

Various government officials have commented that consideration of an inheritance tax is not on the agenda. However, Ms Wood’s speech has certainly sparked a conversation about the potential implications of an inheritance tax in Australia.

Review your estate planning documents

Whilst the likelihood of an inheritance tax being introduced in Australia is unknown, the recent discussions are a good reminder to review your estate planning documents and update them if appropriate.

If you intend on gifting an investment property that brings in rental income or have a beneficiary that lives and works overseas, then you need to review your Will and discuss any potential tax implications with your financial professional and estate planning lawyer.

At Lynn and Brown Lawyers, our Wills and Estates team can assist you in reviewing and updating your estate planning documents to reflect your current circumstances and estate planning objectives.

About the Author: Hannah is a graduate of both the University of Western Australia and Notre Dame University, having completed a Bachelor of Arts (major in ‘Law and Society’’ and minors in History and Psychology) in 2016 and a Bachelor of Laws in 2018.

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