Over the coming decades, Australia is set to experience one of the largest intergenerational wealth transfers in history. Estimates suggest that between $3.5 trillion and $5 trillion will change hands as baby boomers pass on their wealth to children and grandchildren.
Whether you’re preparing to inherit from your parents or grandparents, or you’re thinking about the legacy you’ll leave behind, it’s essential to understand the tax implications and planning strategies that come with this significant shift in wealth. While Australia doesn’t have an inheritance tax, there are other hidden tax traps that can quietly erode the value of what’s passed down.
Key Tax Traps to Be Aware Of
Capital Gains Tax (CGT)
Receiving cash from an estate is generally tax-free. However, inheriting assets like property, shares, or other investments can trigger CGT depending on how and when those assets are sold. For instance, if you inherit a home and sell it within two years of the deceased’s passing, the sale may be exempt from CGT—provided it was their main residence.
If you hold onto the property longer or it was used to generate income, CGT could apply when you eventually sell. Understanding these nuances is crucial to preserving value.
Superannuation
Superannuation is another area full of complexity. Whether tax is payable on inherited super depends on who receives it and how it’s paid.
If the beneficiary is a “tax dependent”—such as a spouse or a child under 18—they typically won’t pay tax on a lump sum. But if the beneficiary is an adult child or someone else who isn’t a tax dependent, the super fund may withhold tax before payment. This can range from 17% to 32%, depending on the types of contributions made to the account.
Getting advice on how your super is structured and who your beneficiaries are can make a significant difference in the amount of tax paid.
Gifting Assets Before Death
Some people choose to gift assets like property or shares while they’re still alive—either to help family members financially or to reduce the size of their estate. While generous, this can trigger an unexpected CGT bill.
Gifting is treated like selling, so CGT may apply based on the difference between the asset’s current value and its original purchase price. However, if the person gifting has capital losses from other investments, these may offset the gain and reduce or eliminate the tax payable.
This is why it’s so important to seek advice before making significant gifts.
Trusts and Family Structures
Family trusts and testamentary trusts (set up under a will) can offer flexibility and tax advantages. These structures allow you to control how and when income is distributed, which can help manage tax across the family and avoid disputes. But they must be set up properly and aligned with your intentions.
Tips to Protect Your Family’s Wealth
- Get your estate plan in order – A legally binding will is the cornerstone of a good wealth transfer strategy. Appointing a power of attorney and a capable executor is equally important.
- Talk openly with your family – The emotional side of inheritance matters just as much as the financial side. Clear communication can prevent surprises and conflict.
- Understand the tax implications – Don’t assume everything passes tax-free. Be proactive in learning about CGT, superannuation, and gifting rules.
- Review your super nominations – Ensure your beneficiaries are up to date and that you’ve completed the correct nomination form (binding vs non-binding).
- Seek professional advice – The rules are complex, and mistakes can be costly. Working with someone who understands estate planning and tax can help you make smarter decisions and keep more wealth within your family.
Need Help Navigating an Inheritance or Planning Your Legacy?
Whether you’re preparing to pass on your wealth or expecting to receive it, we are here to help you navigate the rules, reduce tax, and protect what matters most. At GDA Group, we specialise in helping families make informed, confident decisions about their financial future.
Feel free to reach out if you’d like to discuss your situation or explore your options.