If you have received, or are receiving a sizeable inheritance, you might be wondering about the tax implications of receiving a large sum of money.

As tricky as it can be to consider the tax obligations of an inheritance, it is important to understand how it works.

Currently, there is no inheritance tax in Australia. This means that all the money you receive as an inheritance will remain untaxed.

However, tax implications may still need to be considered.

Inheriting Property

If inheriting property as part of an estate, you will not need to pay tax.

However, there may be Capital Gains Tax payable down the track if you decide to sell the property.

Selling the deceased property within two years of inheriting it or living in the property yourself as a dependent are a couple of ways to avoid paying Capital Gains Tax.

Tax Implications of Receiving a Death Benefit through Super

When a person dies, their super provider pays their remaining super to their nominated beneficiary/ies. Super paid after a person’s death is called a ‘super death benefit’. It can be made to dependents and non-dependents.

Under superannuation law, a death benefit dependent includes:

  • the deceased’s spouse or de facto spouse
  • a child of the deceased (any age)
  • a person in an interdependency relationship with the deceased

If you are a dependent of the deceased, the lump sum payment will not be taxed. You can also opt to receive the inheritance as an income stream through your super. This however will likely mean you need to pay tax.

If you are not a dependent (such as a family friend), you can be paid as a lump sum and will need to pay tax on the benefit received.

How to Avoid the Pitfalls of an Inheritance

The last thing you want to deal with after the loss of a loved one is financial stress.

Especially when it comes to dealing with the inheritance. It can be an emotional time.

So whilst receiving an inheritance may boost your retirement income, it can also affect your Aged Pension which you may not have considered.

  • Is it worth putting some funds into renovating your home prior to downsizing?
  • Should you consider putting some funds in a term deposit or savings account?

If you have come into a sizeable inheritance, it is important to revisit your retirement plan and reassess your new assets and review your ongoing retirement income stream.

If you need assistance with your new retirement plan following an inheritance, contact our team to discuss your options.