Article by Scott Smith Byfields Director
LET’S paint a picture…. grain prices have recovered, fuel supplies have started flowing again, West Coast are in the top four, and your estate plan is done, all is well with the world! But what about the tax?
Part of the estate planning process is to determine where assets are owned, and who controls the entities involved. Market values can be assigned to determine a fair division of assets between siblings or families. Tax implications are often overlooked in this process.
For example, a person owns two rental properties, both worth $1m each. They have two children and will a property to each child. The first property was purchased in 1987 for $120,000, the second property purchased in 2024 for $950,000. Whilst there is no tax on the inheritance of these properties from the estate, if they are subsequently sold by the children, capital gains would be triggered. $880,000 for the first house, $50,000 for the second house. A very different tax outcome for each child. Yes, a 50% discount most likely applies to these gains (for the time being), but still a large difference!
Let’s consider the person’s main residence. If one of the above properties was the main residence of the deceased, and is subsequently sold by the child within two years
of the date of death, this will in most cases be tax free. The rental property if subsequently sold by the other child would trigger capital gains tax. Again, this can result in a large difference in tax outcomes for each child.
What about superannuation? Let’s say the person has $300,000 in a super fund (all invested in cash, and all part of a taxable component in superannuation) and $300,000 cash in their personal name. They will the superannuation to one child and cash to the other. In most cases if they are an adult child and no longer a
dependent there would be tax at 15% (or 17% if going direct from the fund) on the superannuation balance. The cash in their personal names to the second child is tax free. Again, a very different tax outcome.
Farm management Deposits (FMDs) are deemed to be withdrawn on the date of death, and whilst not technically taxed in the estate, the executor is responsible for the deceased’s final tax return. Depending on the wording of the asset distribution in the will, could lead to unintended division of assets.
These are just a few examples, but there are many to consider. Whilst tax should not be the main factor in estate planning, it should be considered.
Speak to your adviser or a Byfields accountant if you would like to know more. Contact Us