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Is Inheritance Tax coming to Australia?

Is an ‘Inheritance Tax’ coming to Australia?


Jan 22, 2022


Australia is an anomaly in the polarising and divisive world of Inheritance Tax.

The Federal Government abolished it in 1979, following the lead of Joh Bjelke-Petersen’s Queensland a year earlier, bowing to pressure from farmers and small business.

The Sunshine State soon earned the reputation of “God’s Waiting Room”.  Wealthy retirees were lured by the relaxed lifestyle and the promise of keeping their hard-earned dollars in their family.

Fearing an exodus north, other states quickly followed suit and by 1982, Tasmania became the last state to repeal the dreaded death tax.

Australia joined Canada in becoming the only western nations to spare taxation of estates.

Other countries like New Zealand, Sweden and Norway followed.

But most stood firm and retain their inheritance tax laws today.

Now, with an inheritance boom coming to Australia to the tune of up to $224 billion a year by 2050, bringing inheritance tax back is again on the agenda. So planning for the future should always consider the possibility of an inheritance tax renaissance.

After all, as the Scouts’ motto goes, it pays to be prepared.

International inheritance taxes

Inheritance taxes vary greatly around the world. Japan has the most oppressive inheritance tax laws at 55% with South Korea not far behind at 50%.

But western countries similar to Australia also have high rates. In France, it is 45% while the US and the UK both charge 40%.

There remain significant differences however between the latter two with the US rate only applied to estates valued at more than $11 million while the UK rate kicks in at just £325,000.

Estate tax implications in Australia

While inheritance tax does not currently apply in Australia, tax implications still need to be considered.

For instance, an individual will need to pay tax on interest earned and any capital gain from the sale of assets acquired from an inheritance.

Earnings generated from a share portfolio will draw the attention of the tax man. If a property is bequeathed and rented, those earnings will be taxed. If the property is sold, capital gains tax may also apply. 

Equally, if a superannuation fund is inherited, a proportion may be subject to tax unless it is left to a surviving spouse.

Planning ahead – what you should consider

A scare campaign in 2019 regarding Labor’s plans to reintroduce a death tax torpedoed Bill Shorten’s tilt at the Prime Ministership. The electorate hollered its contempt for the concept.

While the issue appears to be political suicide for any aspiring government, it continues to bubble away in the background and cannot be discounted going forward.

There is little doubt the absence of an inheritance tax has concentrated wealth in Australia. The top 10% of the country owns almost half of the wealth.

While the reintroduction of such a tax could ease fiscal pressures on the Federal Government during and beyond the pandemic.

Taxes targeting only the extremely wealthy would be more likely to be accepted by the wider community.

One proposal by the Australia Institute in 2016 was a tax-free threshold of $2 million which it deduced would earn the Government an additional $5 billion per year.

Get tax advice as soon as possible

If you think the possibility of leaving or gaining an inheritance is in your future, it is important to get quality advice on the subject now.

Complex rules apply if the testator is an overseas resident or owns property abroad. There are also considerations if the recipient is not an Australian resident or is legally defined as disabled.

Advanced planning can minimise or eliminate many or all of these liabilities.

Contact us today to talk about your inheritance strategy.

The information contained on this article is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.

Taxation, legal and other matters referred to on this website are of a general nature only and are based on Nitschke Nancarrow’s interpretation of laws existing at the time and should not be relied upon in place of appropriate professional advice. Those laws may change from time to time.

Nitschke Nancarrow specialises in accounting, tax and financial advice for superannuation.

Contact us now for a no obligations discussion about your needs.

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