WHAT TO DO WITH AN INHERITED GIFT

If you’ve inherited a gift, the last thing you probably want to think about is tax. However, it pays to think about these issues now rather than be faced with unexpected financial implications later. Here are a few things you should know.

Capital Gains Tax (CGT).

Capital Gains Tax (CGT) was introduced on 20 September 1985. Therefore, it is important to establish whether the inherited asset was acquired by the deceased on or after that date. Why? Because it impacts the amount of CGT you will pay if you sell your asset.

Assets acquired BEFORE 20 September 1985.

Future CGT costs will be predicated on how much the item has appreciated since its pre-20 September 1985 purchase. You should have the item valued as at the date of the deceased’s passing, to determine the ‘cost base’.

Assets acquired AFTER 20 September 1985.

If the item was acquired by the deceased on or after 20 September 1985, you don’t usually need to get a valuation for CGT purposes. This is because the ‘cost base’ for you will be the same as that of the deceased.

Exemptions.

Some inherited assets are exempt from CGT. These include personal-use items and collectables.

What is a personal-use item?

As the name implies, personal-use items are used or kept mainly for personal use or enjoyment. Personal use assets include things like boats, furniture, electrical goods and household items. If the inherited personal-use item had a market value of less than $10,000 on the date of death, you do not need to pay CGT.

What is a collectable?

Collectables include things like artwork, jewellery, antiques (usually defined as an object of artistic or historical significance that is more than 100 years’ old), artefacts like coins or medallions, rare folios, wine or spirits, manuscripts, books, or postage stamps. If the market value of a collectable at the date of death was less than $500, you do not need to pay CGT on that item.

The more time that passes between your inheritance and the sale of a bequeathed item, the harder it can be to navigate the matter of CGT. To avoid headaches, it’s a good idea to get professional financial advice as soon as possible.