Australia is on the cusp of one of the largest intergenerational wealth transfers in history. Over the coming decades, an estimated $3.5 to $5 trillion will pass from baby boomers to their children and grandchildren.
Whether you’re preparing to receive an inheritance or planning the legacy you’ll leave behind, understanding the financial implications is essential. While Australia doesn’t currently impose an inheritance tax, there are other tax considerations that can significantly impact the value of what’s passed on.
Key tax traps to be aware of
Capital Gains Tax (CGT)
Cash inheritances are generally tax-free. However, assets such as property, shares, or managed investments may carry CGT implications depending on how and when they are sold.
For example, if you inherit a primary residence and sell it within two years of the deceased’s passing, the sale may be exempt from CGT. But if the property is held longer or used to generate income, CGT may apply upon sale. These nuances can have a substantial effect on the final value received.
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?
Navigating the complexities of estate planning and inheritance requires foresight and professional advice. Whether you’re structuring your own estate or preparing to inherit, now is the time to understand your options and minimise potential tax exposure.
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.