I’m about to receive my inheritance. Will I have to pay tax on it?

I will receive an inheritance in a few months’ time from my mother’s estate. When I receive this money, do I have to pay tax on it? If I give some to my children, are there any tax consequences for them or me?

Thanks for your question. There is no tax on inheritances in Australia, nor on the estate from which they derive. If some of your mother’s estate was in superannuation, there may be some tax applied to this balance, but that will be taken care of before you receive any money.

When it comes to your inheritance, the ATO will generally leave you alone.Credit: Dionne Gain

There is also no tax applied on gifts, so no problem passing on some portion of your inheritance to your children if you don’t need the money. The only thing to note is that if you receive a Centrelink benefit, the bulk of your gift will be included in your asset test for five years.

Once you receive the payment and invest it, any earnings will be taxed in the normal manner. Frequently, consideration would be given to boosting superannuation savings for long-term tax efficiency.

How much income do I need once retired to live comfortably? I am single and own my home. I have seen various figures suggested, from $50,000 a year to $100,000 a year and more. I’m trying to work out if I can afford to retire.

You’re starting point is spot on here. The first step in working out your retirement plan is clarity on how much income you need once retired.

A good first step is to reverse engineer what you are spending now. How much did you save over the past year? If you have a bank account dedicated to savings, you might be able to compare the balance a year ago to the balance today and arrive at a quick answer here.

Add in any other savings, such as salary sacrifice to super. Subtract the amount you saved from your after-tax income for the year, and the number you get is what you spent.

Now that you know what it costs you to live at present, consider how things will change once you are retired. Will your spending go up because you are out and about more, or will it go down because you no longer have to spend a fortune commuting to work?

Often, when we develop retirement plans for clients, we assume an extra level of spending for the first 10-15 years of retirement. This is when you are at your fittest, so it makes sense to tick a few travel dreams off the list in these early years of freedom.

The answer to your question is very specific to you, but hopefully this process helps.

My mother commenced a pension from her super in September. The fund started with a balance of $1.87 million but has since grown above $1.9 million, even with regular pension payments. Is she now in breach of the Transfer Balance Cap? Should she be withdrawing more to keep her under the limit? If she does draw more, how will the ATO treat these withdrawals?

I’m pleased to tell you that you can rest easy here. The Transfer Balance Cap assessment occurs only at the point when your super converts to a pension.

Provided you were under the cap at that moment, you are OK forevermore. It doesn’t matter what the balance does subsequently. There is no need or benefit in increasing drawings.

Paul Benson is a Certified Financial Planner at Guidance Financial Services. He hosts the What’s Possible? and Financial Autonomy podcasts. Questions to: [e-mail]

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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