Transferring Assets on Death and CGT

CGT and death is a somewhat complex topic, but the main thing to remember is that death itself does not trigger CGT — it merely transfers any CGT liability to the beneficiaries who receive the asset. If the asset is disposed of, they may be liable for CGT, but if the asset is kept for their lifetime any CGT applicable would be passed on, in turn, to their beneficiaries. A simple example may help you understand it.

Let’s assume your father acquired some shares in XYZ Ltd for $50,000 in 1999. When he died in 2008 they were worth $100,000. They were inherited by your mother and for tax purposes the cost base is still $50,000. When your mother died in 2020, they were worth $200,000 and they were left to you. The cost base still remains at $50,000. You have two choices – sell the shares and pay a massive CGT bill because the gain would be $150,000, or keep them, and enjoy the income and the growth, and in leave them to your own children.

This is why it is important to understand the CGT implications of any investment assets when you are receiving a bequest. Unfortunately, many people simply cash the assets in, and in doing so lose a valuable asset and pay a big chunk of unnecessary CGT.

The family home is normally free of CGT if it was the taxpayers residence, and will pass to the beneficiaries tax-free at its market value at date of death. The beneficiaries then have up to 2 years to sell the property, if they wish, and retain the tax-free status. If they decide to keep the property as a rental, the base cost will be its market value at the date of death of the deceased.

It’s important to get good accounting and legal advice both when making a will, and when it appears likely you will be the beneficiary of one. And of course keep good CGT records yourself to ensure your heirs can calculate the cost base of your assets.

Noel Whittaker is the author of Making Money Made Simple and numerous other books on personal finance. noel@noelwhittaker.com.au