One of the most memorable things about the recent Queensland state election campaign has been Clive Palmer’s full-sized advertisements warning “a death tax could be Labor’s plan”. Apparently the advertisements did frighten a lot of people, so let’s look at whether a death tax is likely in the near future.
Let’s get real. Going to an election with a policy of bringing in death duties would be highly risky for any party. But there are situations already occurring in which a tax on death can occur.
If you cast your mind back to the 2019 federal election, Labor went to the voters with a proposal to abolish the refund of franking credits for everybody except Age Pensioners. At the time I wrote that this had the potential to be a tax on widows because of the difference between the pension assets test cut-off points for a couple and a single. If a couple had assets of $700,000 and were receiving a pension of $13,700 a year between them, the survivor would lose their pension on their partner’s death, because the cut-off point for a single pensioner is just $583,000.
Yes, under that proposal, the survivor would have lost the entire Age Pension, and their franking credits, as well their life partner! But the proposal sank like a stone at the polls.
There are two other areas, however, where death can create a tax situation. The first is superannuation – remember that the taxable portion of your superannuation currently suffers a death tax of 17 per cent if left to a non-dependent. This may not be relevant to a couple, because a partner is automatically classed as a dependent under superannuation rules, but it has huge implications for a single person. In the normal course of events, by the time people pass away their children have long ceased to be dependents, so any superannuation they inherit is subject to this tax.
Of course, it is easy to avoid, as long as you have at least one trustworthy person you are close to. The person with the superannuation just needs to execute an enduring power of attorney with instructions for the attorney to withdraw their superannuation tax-free and deposit it in the member’s bank account if death becomes imminent. (This is just one of the topics I cover in my new book, Retirement Made Simple, that you can order from the Starts at 60 Marketplace.)
The other existing tax often associated with death is capital gains tax (CGT). In most cases death does not trigger CGT; it transfers the liability to the beneficiaries of the estate, who will be liable for CGT when they dispose of the asset.
Let’s suppose your parents owned a bundle of CSL shares bought 10 years ago for just $10 each, and which are now worth more than $300 each. If they died tomorrow and left those shares to you, you would be able to receive them free of CGT. But the moment you disposed of them, your CGT would be calculated from the original cost that the deceased paid for them, and you would be liable for CGT on any increase in value over that $10.
So there are definitely situations where death can trigger a taxable event. Notice though, that all the examples above relate to Commonwealth legislation, which has nothing to do with what any state government may decide to do.
But bringing in a death tax would not be easy. In the late 1970s Queensland Premier Sir Joh Bjelke-Petersen abolished death duties in Queensland, and this action was quickly followed by all the other states and territories, as it would be impractical to have death duties in some states and not in others.
And there is one more issue – you can’t have death duties without imposing gift duty as well. Otherwise, people close to death would simply give their assets away to avoid a tax on the estate. Our tax system is continually under review, but I reckon that death duties will stay in the too-hard basket for many years to come.
Noel’s new book Retirement Made Simple is available on the Starts at 60 Marketplace for $29.99. Click here to buy now before it sells out!