Capital gains tax (CGT) implications
Special capital gains tax (CGT) rules apply to the transfer of any CGT assets from a deceased estate.
When a person dies, the assets that make up their estate can either pass directly to:
- a beneficiary (or beneficiaries)
- their legal personal representative (for example, their executor) who may dispose of the assets or pass them to the beneficiary (or beneficiaries).
A beneficiary is a person entitled to assets of a deceased estate. They can be named as a beneficiary in a will or they can be entitled to the assets as a result of the laws of intestacy (when the person doesn't make a will).
A legal personal representative can be either:
- the executor of a deceased estate (that is, a person appointed to wind up the estate in accordance with the will)
- an administrator appointed to wind up the estate if the person does not leave a will.
Disregarding a capital gain or loss on death
There is a general rule that CGT applies to any change of ownership of a CGT asset, unless the asset was acquired before 20 September 1985 (pre-CGT).
There is a special rule that allows any capital gain or capital loss made on an asset acquired on or after that date (a post-CGT asset) to be disregarded if, when a person dies, an asset they owned passes either:
- to their legal personal representative or to a beneficiary
- from their legal personal representative to a beneficiary.
However, there are exceptions to this rule.
A capital gain or capital loss is not disregarded if a post-CGT asset owned at the time of death passes from the deceased person to a tax-advantaged entity or to a foreign resident.
In these cases, a CGT event is taken to have happened in relation to the asset just before the person died. The CGT event will result in either a:
- capital gain if the market value of the asset on the day the person died is more than the cost base of the asset
- capital loss if the market value is less than the asset's reduced cost base.
These capital gains and losses should be taken into account in the deceased person's 'date of death return' (the tax return for the period from the start of the income year to the date of the person's death).
However, any capital gain or capital loss from a testamentary gift of property can be disregarded if the gift is made:
- under the cultural bequests program (which applies to certain gifts of property - not land or buildings - to a library, museum or art gallery), or
- to a deductible gift recipient or a registered political party, and the gift would have been income tax deductible if it had not been a testamentary gift.
The condition that testamentary gifts of property must be valued at greater than $5,000 before the CGT exemption applies does not apply to gifts made on or after 1 July 2005.
Prior year net capital losses
If the deceased person had any unapplied net capital losses when they died, these can't be passed on to you, as the beneficiary or legal personal representative, for you to offset against any net capital gains.
Last Modified: Thursday, 28 June 2012