Inheritance Tax in Queensland

An often overlooked issue when preparing a Will is the applicability of any taxes when the estate is distributed.

While inheritance tax or death tax does not apply in Queensland, other federal and state taxes such as Capital Gains Tax and Transfer Duty (Stamp Duty) can affect your estate.

When preparing your Will, it is important to discuss with your lawyer and financial planner the appropriate estate planning strategies that will minimise any applicable taxes related to your assets and the effect they may have on your beneficiaries.

Key Takeaways

• Inheritance tax or death tax does not apply in Queensland.
• Other taxes may still affect an estate, including Capital Gains Tax, Transfer Duty (Stamp Duty) and land tax.
• A CGT event can arise where a Will directs property to be sold, transferred to a beneficiary, or distributed to a non-resident beneficiary.
• In Queensland, a general exemption usually applies to property transferred to beneficiaries under a Will, but later transfers may attract stamp duty.
• Careful estate planning with legal and financial advice can help minimise tax consequences for beneficiaries.

Capital Gains Tax

Capital Gains Tax (CGT) in Australia essentially revolves around the concept of a ‘CGT event’. CGT events are the different types of transactions that may result in a capital gain or loss, for example when an asset such as property is transferred.

When it comes to a Will, a CGT event can arise in several instances:

1. If your Will directs that a particular property is to be sold upon your death, then a CGT event will arise and your Estate will be liable for any applicable capital gains tax. An exemption will apply however in the event that:
   • The property is your primary residence; and
   • The beneficiary disposes of its ownership interest of the property within two (2) years of your death;
2. If your Estate Will directs that a particular property is to be transferred to a nominated beneficiary, then a CGT event will arise when your beneficiary subsequently transfers the property. Please note, however, that the acquisition price for the CGT event is calculated from when you acquired the property, not when your beneficiary receives it; and
3. If your Will directs distribution of property to a foreign resident (known as a non-resident beneficiary) then the normal CGT rollover of assets to beneficiaries does not occur and a taxable CGT event takes place. The taxable capital gain is calculated based on the market value of the assets transferred to the non-resident beneficiary, less its CGT cost base. This can be a problematic issue when dealing with a blended class of beneficiaries (i.e. residents and non-residents) because the estate is assessed for the CGT, which may unfairly reduce the estate assets available for distribution to all residual beneficiaries of the estate.

Stamp Duty and Land Tax

In relation to stamp duty in QLD, a general exemption applies to properties being transferred to beneficiaries pursuant to the terms of a Will. However, any subsequent transfers will attract stamp duty. For example, consider a situation where your Will directs the sale of your family home for the specific benefit of one of your children. Another of your children may wish to purchase the property (it is, after all, the family home). Stamp duty will be payable on the sale of the property from your Estate to that child.

Land tax will also be paid out of your estate, so it is important that the administrator of your estate obtains a land tax clearance certificate before transferring any property to a beneficiary. This will confirm that all land tax is up to date and that the property is clear of any previous land tax assessments, penalties and interest.

Get Help from Experienced Lawyers

Whilst inheritance tax is not payable in Queensland, you should make sure that your Will effectively provides for your intended estate planning objectives.

Should you want some advice in this regard, or should you have any concerns about the applicability of capital gains tax or stamp duty on your estate, please do not hesitate to contact our Will & Estate lawyers. Call (07) 5532 3199 or submit an online enquiry.

Content by Anthony Kyle

Frequently Asked Questions

Is there an inheritance (death) tax payable in Queensland?

No. There is currently no inheritance or death tax payable in Queensland or elsewhere in Australia. Beneficiaries do not pay tax simply because they receive an inheritance. 

However, while no inheritance tax applies, other taxes may still arise depending on how estate assets are dealt with.

If there’s no inheritance tax, what taxes can still affect an estate (CGT, transfer duty/stamp duty)?

Although inheritance itself is not taxed, other taxes may apply, including Capital Gains Tax (CGT), particularly when assets are sold, and Transfer duty (stamp duty), in certain transactions

For example, transferring assets to beneficiaries under a will is generally exempt from transfer duty, but tax consequences may arise later if those assets are sold or otherwise dealt with.

What is a “CGT event” and how can it arise when someone dies?

A CGT event is a transaction that triggers a capital gain or loss for tax purposes. When someone dies, a CGT event does not automatically occur. However, CGT may arise later when the estate sells an asset, or a beneficiary disposes of an inherited asset. In these situations, the tax outcome depends on how the asset is dealt with after death.

When does CGT apply if a will directs a property to be sold?

If a will requires an asset (such as real property) to be sold, CGT may apply at the time of sale. In this scenario, the estate (through the executor) may be liable for any capital gain realised on the sale, depending on the nature of the asset and whether any exemptions apply.

What CGT exemptions may apply for a deceased person’s main residence?

A key exemption may apply where the property was the deceased’s main residence, and it is sold within a specified timeframe or used in a way that satisfies exemption conditions. The availability of the exemption depends on how the property is treated after death.

What is the 2-year timeframe rule for beneficiaries disposing of inherited property?

Beneficiaries may be eligible for a CGT exemption if they dispose of an inherited property within two years of the deceased’s death. This rule commonly applies to a deceased person’s main residence and can allow the property to be sold without triggering CGT, provided the conditions are met.

Can beneficiaries be liable for tax outcomes depending on what they do with inherited assets?

Yes. Receiving an inheritance is not taxed, but beneficiaries may incur tax depending on how they deal with the asset. For instance, selling an inherited asset can trigger capital gains tax, and retaining or using the asset in certain ways may affect its tax treatment. The tax outcome ultimately depends on the beneficiary’s actions after receiving the inheritance.

What estate planning strategies can reduce tax impact on beneficiaries?

Estate planning can help minimise tax consequences for beneficiaries. This may include:

• Structuring how assets are distributed under a will
• Considering whether assets should be sold or transferred
• Planning for the use of available CGT exemptions

Obtaining legal and financial advice when preparing a will can help ensure tax implications are properly considered.