This was published 2 months ago
Opinion
When my kids inherit my shares, how much tax will they have to pay?
Paul Benson
Money contributorI have a share portfolio which was acquired progressively. When I pass, is CGT calculated based on my acquisition dates, or the date when my beneficiary inherits them?
Assuming the beneficiaries retain the shares, then they inherit the cost base applicable to those shares. This means that the calculation to determine capital gains will be based on the price you acquired them for originally.
When you pass on, your beneficiaries will inherit your cost base – including any tax you owe.Credit: Simon Letch
This being the case, if your beneficiary is someone who is likely to be paying a meaningful amount of tax, it may be advantageous for you to take the opportunity to rebalance your portfolio periodically.
Sell some of these shares before them passing to the next generation and reinvest the proceeds as you see fit and opportunities emerge. In this way, you would trigger the capital gains tax assessments and pay the tax applicable to your circumstance.
If you are retired and have used the superannuation system well, it is possible your personal tax is very low.
I am 52 years old and received a TPD payout within my super fund earlier this year, which I completely withdrew and used the full amount to pay down my line of credit mortgage. I received a lump sum payment, with a portion paid in tax.
I am aware that when I do a tax return I will have to pay a Medicare levy. As I am unable to return to work due to illness, I wondered if you have any low-risk strategies for reducing the tax and/or Medicare levy? Would it be beneficial to pay money back into my super? I still have full access to withdraw the $155,000 from the line of credit.
Whilst there is no tax payable on the insurance payout when it goes to your superannuation fund, tax becomes applicable when you then withdraw the money from superannuation prior to age 60 (only possible because you have been found to be totally and permanently disabled).
This is curious, as the insurance payout is not helpful to you if it is stuck within super, but those are the rules. As a slight quid pro quo, your super fund was able to claim a tax deduction for the insurance premiums over all these years, which has been passed on to you as lower insurance costs.
As you noted in your question, the super fund withholds a certain amount of tax, in much the same way as an employer would from a regular wage. At the end of the year, you then do your personal taxes, listing the taxable portion of the withdrawn amount as income, with the tax withheld by the super fund also recorded.
The ultimate amount of tax you pay will then depend on your total income for the financial year, i.e. this payout plus any wage income, investment income, etc. and the applicable marginal tax rates and Medicare levy that applies in your circumstance.
Given this process, tax-deductible expenses should serve to reduce the amount of tax and Medicare levy that you ultimately pay.
A tax-deductible superannuation contribution may well be one way that you could reduce your tax whilst improving your long term financial outcome. There might even be the opportunity to do catch up contributions. Keep in mind that 15 per cent tax will apply to these contributions when they arrive in your fund.
You should discuss this with your accountant prior to June 30. This is a complex area and some expert assistance considering your specific situation would certainly be of value.
Paul Benson is a Certified Financial Planner at Guidance Financial Services. Questions to: paul@financialautonomy.com.au
- Advice given in this article is general in nature and is 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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