Capital Gains Tax (CGT) is a tax on the profit realized on the sale of a non-inventory asset such as property, real estate or stocks. In relation to wills, it is important to note that this tax can come into play when beneficiaries seek to vary gifts granted to them in a will. In this article we will explore the CGT consequences facing beneficiaries should you seek to vary will gifts.

If the beneficiaries agree to the distribution of real property other than as stated in the will, there will be stamp duty payable on the transfer of the property. Capital gains tax advice should also be sought on a variation of this nature, such advice can be sought from our team of experienced accountants.

One way people commonly can vary the gifts in a will is through a deed of family arrangement (DOFA). Notably, if the following criteria apply, beneficiaries can typically escape CGT:

  1. If beneficiaries wish to vary the gifts in order to settle a claim on the estate
  2. If the administration of the estate is incomplete at the time of the DOFA and
  3. If the only consideration a beneficiary provides under the arrangement is a waiver of their claim on the estate

The ‘CGT death rollover’ should apply here instead of CGT as per the Income Tax Assessment Act 1997, however, it is vital to note that whilst a DOFA may avoid CGT, duty on the transfer of the assets to the substituted beneficiary may remain. When a legal personal representative (LPR) such as your lawyer, transfers property to a beneficiary under an agreement that varies the will, the value of the property that is subject to duty is reduced proportionately to the value that the beneficiary was originally entitled to.

If property is given to beneficiaries in accordance with the will no capital gains tax or stamp duty will be payable by the estate or beneficiaries at the time. However, capital gains tax may be payable by the beneficiaries when they dispose of the property at a later date. There is an exception to this if the beneficiary is a tax-exempt charity, a non-resident or a complying superannuation fund. These entities do not pay tax and so the capital gains tax (if any) must be paid by the estate.

If assets are sold by the estate, then capital gains tax may be charged to the estate. There will be no capital gains tax on the sale of the will maker’s main residence if it is sold and the sale settles within 2 years of the date of his or her death.

Capital Gains Tax can be a complex topic so it is vital that you gain informed advice and information specific to your matter. We at the Quinn Group can provide this advice tailored to your CGT circumstances.

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