The inheritance tax generates various myths and confusion. It is also known as the estate tax. Many people believe that everyone is subject to inheritance tax, that they require paying taxes (at the total value) on the assets they inherit, and that beneficiaries are responsible for paying the tax themselves.
However, these beliefs are not entirely true. This blog explores and debunks some common myths and misconceptions surrounding inheritance tax in Australia. Read on to find out more!
What are the Common Myths About Inheritance Taxes in Australia?
Myth 1: Everyone is subject to inheritance tax
This is a common myth surrounding inheritance tax in Australia, but it is not true. In 1979, after the abolition of the inheritance tax, there was no federal inheritance tax, which stands true to date. However, some states have their form of inheritance tax, which only applies to certain types of inheritances and estates above a particular value.
Myth 2: Inheritance tax applies to all inheritances
Inheritance tax only applies to certain types of inheritances in Australia. Specifically, it applies to assets that are subject to the deceased person’s will or assets that pass through intestacy laws. This means that not all gifts or inheritances are subject to inheritance tax.
Myth 3: The executor is responsible for paying the inheritance tax
In Australia, the beneficiaries of an estate are responsible for paying any inheritance tax that is due, not the executor. The executor is responsible for correctly paying the tax, but they are not personally liable.
Myth 4: Inheritance tax applies to all estates, regardless of size
Inheritance tax in Australia only applies to estates that are above a particular value, which varies depending on the state. Each state sets its threshold, and the estate’s value must exceed this threshold for inheritance tax to be applicable. In New South Wales, for example, the value is $440,000, while in Victoria, it is $675,000. It is substantial to understand the specific rules in your state and look for professional advice to ensure that you are meeting your tax obligations.
Myth 5: Inheritance tax only applies to cash and property
Inheritance tax in Australia applies to all estate assets, not just cash and property. This includes investments, shares, personal possessions, and any other assets of the deceased person. The value of these assets is necessary to calculate the inheritance tax they owe.
Myth 6: Inheritance tax and capital gains tax are the same things
Inheritance tax and capital gains tax are two separate taxes in Australia. Inheritance tax is a tax on the transfer of an estate to the beneficiaries, while capital gains tax is a tax on the increase in value of an asset over time. Capital gains tax may apply to assets that are sold or disposed of, including assets one inherits, but it is not the same as inheritance tax. To learn more about capital gain and inheritance tax in detail, seek professional advice to ensure you meet your tax obligations.
Myth 7: Inheritance tax is a burden on middle-class families
Since the abolition of the inheritance tax in Australia in 1979, it does not apply to most families, including middle-class families. Only a minor percentage of estates are subject to inheritance tax in Australia. This typically applies to estates that are above a particular value. While the tax may seem like a burden to some, it is crucial to understand the specific rules in your state and seek professional advice whenever necessary.
Myth 8: It is easy to avoid inheritance tax
While there are ways to minimise the amount of inheritance tax owed, you cannot evade it completely. In Australia, some strict rules and regulations must be followed when it comes to inheritance tax, and attempting to evade it through questionable means can result in penalties and legal consequences. It is significant to work with a professional advisor who can help you understand your options and develop a strategy for minimising your tax liability within the bounds of the law.
Myth 9: Inheritance tax is the same in all states
Inheritance tax rules and regulations can vary between states in Australia. Each state sets a threshold and rate of tax, and some states do not have an inheritance tax at all. For example, New South Wales has a threshold of $440,000 and a tax rate of 4.5%, while Victoria has a higher point of $675,000 and a lower tax rate of 0.0% to 4.5%. To learn more about tax obligations in various states, you must seek professional advice to ensure that you are meeting your tax obligations.
Myth 10: Inheritance tax is only paid by the rich
As per our previous discussion, inheritance tax only applies to estates above a specific value. This means that it is not just the rich who are subject to inheritance tax. Anyone who inherits an estate above the threshold in their state could be liable for inheritance tax.
There are numerous myths and misconceptions surrounding inheritance tax, and by understanding the facts about inheritance tax, you can ensure that you are well-informed. You can then prepare for any tax implications that may arise from inheriting assets. To learn more about inheritance tax, intestacy, probate meaning and other related queries, speak to experts at Probate Consultants today!