Helping You Understand Tax Obligations

Tax Considerations for Gifts & Inheritance

Receiving a gift or inheritance can be a significant personal and financial event. While Australia does not have formal gift or inheritance taxes, certain transactions or outcomes may still result in tax obligations under existing laws. Understanding how tax may apply to gifted or inherited assets can support clearer decision-making and financial planning.

This overview explores the general tax treatment of gifts, inherited property, shares and superannuation in Australia.

Are Monetary Gifts Taxed in Australia?

In Australia, there is no specific gift tax. This means that, in most situations, a recipient is not required to pay tax on money received as a gift.

However, there are still a few considerations:

• If the gift originates from business income or the sale of an asset, the person giving the gift may be subject to tax, such as Capital Gains Tax (CGT).
• If the recipient earns interest on a monetary gift or investment, that income generally needs to be declared.
• Gifts received from overseas may require reporting, depending on how the funds are used or if they generate income in Australia.

It is always advisable to retain documentation related to large gifts for future reference.

Inheritance & Australian Tax Law

Australia does not impose a specific inheritance tax. However, some inherited assets may have tax consequences under other rules—especially when those assets are later sold or generate income.

Common examples include:

• Superannuation death benefits: Depending on your relationship with the deceased, tax may apply to certain components of the superannuation benefit.
• Capital Gains Tax (CGT): If you inherit assets such as property or shares and sell them at a later date, CGT may be payable based on the increase in value since the time of inheritance.
• Ongoing income: If you receive dividends from inherited shares or rental income from inherited property, this income generally needs to be reported in your tax return.

Inherited Shares: What Happens if They’re Divided?

Inherited shares can be distributed among beneficiaries, often siblings or family members. The tax treatment will depend on how the shares are handled.

Factors that may influence CGT outcomes include:

• Whether the shares are held or sold after inheritance
• The original purchase date & cost base of the shares
• Whether a gain or loss is realised when selling the shares
  

Maintaining records is important for future reporting if the shares are sold at a later date.

Inherited Property & Capital Gains Tax

If you inherit property, it is not immediately subject to tax. However, tax may apply if the property is sold in the future.

CGT considerations include:

• If the property was the deceased’s main residence and is sold within two years, it may be exempt from CGT.
• If the property was an investment, CGT usually applies when it is sold. The “cost base” used for calculating CGT is generally reset to the market value at the time of inheritance.

If the inherited property generates rental income, that income must be declared and relevant expenses may be deductible.

Although Australia does not have a formal gift or inheritance tax, tax obligations can still arise in specific situations. These may include receiving income from inherited assets, selling inherited property or shares or managing superannuation death benefits.

Understanding how the tax system treats different types of gifts and inheritance can help with planning and reduce the risk of unexpected outcomes.

To learn more about your situation, contact Pola & Co in Warrnambool on (03) 5561 2992.