Death and Taxes: the Basics
by Jacqui Brauman
I often get asked if â€œprobate still existsâ€. Yes, probate still exists, but probate is not a tax. Essentially, a grant of probate is the authorisation an executor gets from the Supreme Court once a Will has been proved and allows an executor to deal with estate assets.
What most people actually mean when they ask â€œdoes probate still exist?â€ is â€œwhat taxes applyâ€?
Well, there are not death duties or estate taxes in Australia!
The taxes that apply to an estate after someone dies are mainly income tax, stamp duty and capital gains tax.
A final tax return will often need to be done for the deceased individual, up until the date they die. If the estate earns any income before it is distributed to beneficiaries (like interest or dividends) then the estate may also need to do a tax return to pay income tax.
If real estate is gifted to someone under a Will, then there is no stamp duty payable on the transfer of that land in Victoria.
If someone buys the real estate from the estate (even if that person was partially a beneficiary) then there is stamp duty paid by the purchaser, just like if they were purchasing any other property.
Capital gains tax
Generally, if real estate (or other capital asset) is gifted to someone under a Will, then there is also no capital gains tax payable, because the transfer doesnâ€™t amount to a disposal of an asset for CGT purposes.
However, what does change is the assetâ€™s cost base in the hands of the beneficiary when they come to sell the property. This is probably a good thing, because they donâ€™t inherit a low cost base if the deceased had owned the property for a while. The cost base is reset to the market value as at the date of death.
The main residence exemption on capital gains tax applies for two years after the date of death, so the estate can sell the property within that time and not incur capital gains tax.
Dealing with the capital gains tax for joint tenancies or life estates is too complex for this article, but it is certainly something that Theobald Lawyers can help you with.
Contact us to arrange a chat with one of our legal professionals. It doesnâ€™t hurt to ask.