When planning your estate, one of the most significant decisions you will make is how to distribute your assets, particularly real property, among your loved ones. In New South Wales (NSW), it is common to gift property through a valid will. While this method offers several advantages in terms of certainty and legal recognition, it is crucial to understand the tax implications associated with different asset types.
This article outlines how property and other assets are treated when gifted through a will in NSW, the potential Capital Gains Tax (CGT) consequences for your beneficiaries, the Centrelink implications if property is gifted during your lifetime, and strategies to minimise liabilities and ensure your wishes are implemented effectively.
1. Gifting Property via a Will in NSW
Gifting property through a will is a common and legally recognised method of estate distribution in New South Wales. It provides certainty and often minimises transfer costs, especially compared to lifetime transfers. However, beneficiaries and executors should understand the duties and legal consequences that may arise upon transfer.
- When property is bequeathed through a valid will in NSW, beneficiaries are treated as having received it “in accordance with the will.”
- Transfer Duty (Stamp Duty) is minimal:
- Currently $50, increasing to $100 from 1 February 2024.
- Applies regardless of property value, provided the transfer is in accordance with the will.
- If beneficiaries make alternative arrangements, such as buying or swapping shares amongst themselves, full transfer duty applies, based on current market value.
2. No Inheritance Tax, But CGT May Apply
While there is no inheritance tax in Australia, this does not mean that property or asset transfers are completely tax free. Beneficiaries should be aware that when they eventually sell or otherwise dispose of inherited assets, they may be liable to pay Capital Gains Tax (CGT) . The CGT rules can be complex and depend on when the deceased acquired the asset, how it was used, and when it is disposed of. Proper understanding and timing can significantly impact the amount of tax payable.
- Australia abolished inheritance tax in 1979. As such, no tax is payable at the point of inheritance.
- However, Capital Gains Tax (CGT) may apply when the beneficiary later disposes of the asset.
Key Points:
- No CGT payable upon inheriting the asset.
- The asset is acquired at the deceased’s date of death market value.
- If the deceased acquired the property before 20 September 1985, it is a pre CGT asset.
3. The Main Residence Exemption and Other Special Rules
Inherited property that was the deceased’s main residence may attract valuable CGT exemptions. Understanding the timing of the sale and the property’s use before and after inheritance can make a significant difference to the tax payable.
- If sold within 2 years of the date of death, the property may be exempt from CGT under the main residence exemption.
- If sold later, a partial exemption may still apply depending on usage and ownership.
Joint Tenancy:
- Property held in joint tenancy passes automatically to the surviving owner.
- The inherited portion is revalued at the deceased’s date of death and may be eligible for CGT exemptions.
4. Other Assets Commonly Gifted in Wills
Apart from real property, wills often deal with other assets such as shares, cash, personal belongings, and superannuation entitlements. Each asset class is subject to distinct tax treatments and rules, so it is important to understand the specific implications for each.
- Shares: CGT applies on sale; 50 percent discount may apply if held over 12 months.
- Cash or personal items (e.g. cars): Not taxable unless capital gain arises.
- Superannuation: Tax free to dependants; taxable at 17 percent for non dependants.
5. Gifting Property During Lifetime: The Risks
Some people choose to gift property during their lifetime to avoid complications after death. However, this strategy can trigger immediate tax consequences and have long term financial implications, particularly for Centrelink pension eligibility.
- Gifting property while alive is treated as a sale at market value, triggering CGT on unrealised gains.
- This can lead to a significant tax bill for the donor.
- It can also be assessed by Centrelink as a “deprived asset,” reducing pension entitlements for up to five years.
6. Centrelink Rules for Gifting Assets
Centrelink applies strict deprivation rules when it comes to gifting. Understanding these rules is crucial if you are planning to gift assets while also receiving or applying for the Age Pension or other benefits.
- Individuals may gift up to $10,000 per financial year or $30,000 over five years without affecting entitlements.
- Gifts exceeding these limits are counted as assessable assets for five years.
- Exceptions may apply through correctly structured Granny Flat Agreements or Special Disability Trusts.
7. Tax Strategies and Minimising Liabilities
With careful planning, it is possible to reduce the tax burden on your estate and on your beneficiaries. The following strategies can help maximise exemptions, access discounts, and avoid common pitfalls associated with gifting and inheritance.
- Hold inherited property for over 12 months to access the 50 percent CGT discount.
- Maintain records of improvements and expenses to increase the cost base.
- Sell the deceased’s main residence within 2 years of death to avoid CGT.
- Consult a tax or estate lawyer early to plan for Division 296 superannuation changes.
8. Summary Table: Tax Consequences by Asset Type
The following table summarises the tax implications associated with various asset types when transferred through a will or as a lifetime gift. It serves as a quick reference for comparing how different categories of assets are treated for inheritance, CGT, and Centrelink purposes.
| Asset Type | Tax on Inheritance | Tax on Disposal by Beneficiary |
| Main Residence (≤2 years) | No or nominal duty | Likely CGT exempt |
| Main Residence (later) | Nominal duty | Partial CGT exemption may apply |
| Rental or Investment Property | Nominal duty | CGT on gain; 50 percent discount if held >12 months |
| Joint Tenancy | Nominal duty | Cost base resets; CGT may apply on future sale |
| Shares or Securities | No duty | CGT applies on sale; 50 percent discount may apply |
| Cash or Personal Items (e.g. car) | No tax | No CGT unless item appreciates in value |
| Super to Dependant | No tax | Tax free if paid to spouse, minor, or financial dependant |
| Super to Non Dependant Adult | No duty | 17 percent tax on taxable component |
| Property Gifted in Life | CGT on giver | Recipient pays no CGT until their own disposal |
Final Thoughts
At Sydney City Legal Practice, we assist individuals and families in preparing clear and effective estate plans that reflect their wishes and protect their loved ones. If you are considering gifting property through your will, or even transferring assets during your lifetime, we can guide you through the legal and practical steps involved.
We will take the time to understand your circumstances, review your asset structure, and determine whether any legal exemptions, concessions, or planning opportunities are available to you. We will ensure your intentions are properly documented and carried out in a way that minimises risk and avoids unexpected complications for your beneficiaries.
With major changes like Division 296 coming into effect, professional legal and financial advice is key to preserving asset value and achieving your estate planning goals.
Whether you are drafting a will, planning to transfer real estate, or simply want to understand your options, we are here to help.
Contact us today for a free consultation on 0437 822 808 or submit an online enquiry here
Author: Carolina Reveco, Principal of Sydney City Legal Practice
This article is to serve as a general information source only. This publication contains opinions, examples, words, and extracts from legislation and other sources; it should not be used as a source of legal, financial or tax advice. To obtain personalised legal advice tailored to your needs that can be relied upon, please reach out and speak to our legal team
