Capital Gains Tax implications on death

Topic Objectives

  • Identify different capital gains tax assets;
  • Define collectables and explain their capital gains tax treatment;
  • Define personal use assets and explain their capital gains tax treatment;
  • Describe how capital gains tax is levied on the assets of a deceased estate;
  • Calculate a deceased estate’s capital gains tax liability for both pre- and post- capital gains tax assets;
  • Outline the capital gains tax implications for non-resident beneficiaries;
  • Outline the capital gains tax implications for tax exempt bodies and superannuation funds;
  • Explain the capital gains tax consequences for a deceased’s main residence; and
  • Describe the treatment of life insurance policies with respect to capital gains tax.

What is a Capital Gains Tax asset?

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A Capital Gains Tax (CGT) asset is defined as property, or a legal or equitable right that is not property.  To avoid any doubt, CGT assets are stated to specifically include:

  • Land and buildings;
  • Shares in a company;
  • Units in a unit trust;
  • Options;
  • Debts owed to a taxpayer;
  • Certain rights – such as those to enforce a contractual obligation;
  • Foreign currency;
  • Goodwill, or an interest in goodwill;
  • An interest in a partnership asset;
  • Any other interest in a partnership;
  • Collectables; and
  • Personal use assets.

Collectables

A collectable is:

  • artwork, jewellery, an antique, or a coin or medallion; or
  • a rare folio, manuscript or book; or
  • a postage stamp or first day cover,

These are items that are used or kept mainly for the taxpayer’s (or an associate’s) personal use and enjoyment. If the collectable had a market value, when it was acquired, of $500 or less any capital gain or loss made from that collectable is disregarded. However if a collectable was acquired for $500 or less before 16 December 1995, any capital gain or loss is disregarded.

If collectables are disposed of individually when they would normally be disposed of in a set, an exemption is only available if the set was acquired for $500 or less. This does not apply to collectables acquired before 16 December 1995.

A capital loss from a collectable can only be offset by a gain from another collectable either now or in the future. If some or all of a capital loss from a collectable cannot be applied in an income year, the unapplied amount can be applied in the next income year for which your capital gains from collectables exceed the capital losses (if any) from collectables.

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