When inheriting a home, most people are aware that if it is sold within two years of the deceased’s passing, no capital gains tax (CGT) is payable. There are also other circumstances where an inherited home can be sold without incurring CGT. However, when it comes to other inherited assets—such as cars, shares, vacant land, jewellery, or artwork—no such exemption applies if these assets are sold by the beneficiary or by the executor during the estate’s administration.
That said, some assets may still be exempt from CGT when sold, as they are not subject to CGT at all. This typically includes regular cars, even vintage vehicles. In most other cases, inherited assets that are not classified as “purely personal” items (such as ordinary books, furniture, and clothing) will be subject to CGT when sold. This includes assets that the deceased acquired before 20 September 1985, which would not have been subject to CGT had they been sold while the deceased was alive.
If an inherited asset is subject to CGT, the beneficiary is deemed to have acquired the asset at the same cost the deceased originally paid, provided the asset was acquired by the deceased after 20 September 1985. The capital gain or loss is then calculated based on this "deemed" cost. For assets acquired by the deceased before that date, the beneficiary uses the market value of the asset at the time of the deceased’s death as the cost base. This often results in lower CGT liability on a later sale.
In both scenarios, the beneficiary benefits from a "deemed cost base" for CGT purposes, despite not having paid for the asset. Moreover, if the asset was acquired by the deceased after 20 September 1985 and has been held by the deceased, the executor, and the beneficiary for a combined period exceeding 12 months, any capital gain made by the beneficiary is typically eligible for a 50% CGT discount. If the asset was acquired by the deceased before this date, the 12-month ownership requirement applies to the beneficiary (and executor, if applicable) to qualify for the discount.
For inherited shares, determining the specific cost base for each share can be complex, particularly if the shares were acquired through dividend reinvestment plans, share splits, or company restructures.
While most “purely personal” items (such as books, furniture, etc.) are generally exempt from CGT when sold by a beneficiary, there is a special category of personal assets known as “collectables” that are subject to CGT. This includes items like artwork, jewellery, antiques, and coins. These assets retain their status as collectables when inherited, and the special CGT rules that applied to the original owner also apply to the beneficiary.
Lastly, different rules apply if the beneficiary is a foreign resident for tax purposes and inherits assets from an Australian resident. In such cases, the deceased is deemed to have sold the assets just before their death, and CGT may be payable in their final tax return. However, there are exceptions, particularly for inherited land in Australia.
Managing inherited assets can be complex, but with proper planning, there may be opportunities to reduce potential CGT exposure. We are available to assist at every stage of the process.
