Death and Taxes: Managing the Hidden Risks in Estate Planning – 6 program recorded highlight series

Program 1:  Deceased Estates: How Exempt is the Main Residence Exemption?

During a person’s lifetime, their main residence is exempt from CGT if certain conditions are satisfied. However, once the residence becomes an “inherited main residence”, the conditions for the exemption can have added complexities. This session explores the issues, including:

• The conditions to be met for the main residence CGT exemption to apply in a deceased estate
• How the rules apply to a main residence owned by the deceased with another party, either jointly or as tenants in common?
• The ATO’s safe harbour provisions when time limits for the sale are not met (PCG 2019/5)
• Dealing with situations where deceased moved from the solely owned residence prior to death (ie. nursing home, family member’s home), and:
  • the spouse remained in the family home, or
  • the residence became income producing
• How to calculate a capital gain on a main residence if the exemption conditions are not met
• Tax issues to consider if the executor:
  • subdivides the land the main residence is situated on prior to sale
  • demolishes the family home as part of the subdivision prior to the sale
• How state and revenue taxes and duties can apply post death
• Practical examples

Program 2:  When the Deceased’s Liabilities Include a Division 7A Loan

Managing Division 7A loans during a person’s lifetime is tricky enough. So, spare a though for the executor that is faced with the challenge of dealing with Division 7A loans left behind by the deceased. This session explores the issues, including:

• Whether the executor “inherits” the obligations of complying with the Division 7A requirements
• Can a deceased estate be assessed on a Division 7A deemed dividend? (ATO ID 2002/741)
• Can the lending company write off the debt after death without any adverse tax implications applying?
• What to do if the estate has insufficient funds to repay the loan
• Does the ATO apply its discretion to disregard Division 7A deemed dividend issues when dealing with executors?
• Dealing with:
  • timing issues when company financial statements uncover Division 7A issues that surface after granting of probate
  • tax implications for loans by the deceased that don’t exceed the company’s distributable surplus
• Practical tips for managing Division 7A issues in a deceased estate
• Case study

Program 3: Dealing with the Bank of Mum and Dad Pre and Post Death

With high cost of living pressures and housing prices are proving challenging, early inheritances are a way for parents to pass on their assets to the next generation and see the benefits of the gift in their own lifetime. So, from a tax perspective, what difference does it make whether assets are realised pre or post a parent’s death? This session explores the question, including:

• A comparison of the tax implications of an investment property sale pre death and in the course of administering an estate
• Transferring a property to a family member pre death or in accordance with a will – what are the tax differences?
• Are there stamp duty or land tax implications if:
  • a property title is transferred from parents to a family member to live in?
  • a property is used by a family member and subsequently transferred to them in accordance with a will
• The tax consequences of entering into a formal agreement with a family member to use a property financed by parents:
  • if the property will be subsequently transferred to the family member (ATO ID 2005/216), and
  • how to calculate CGT event B1 if triggered
• Case study examining: Parents plan to knockdown home and subdivide, building new home on one block and a residence for adult child on second block:
  • what are the tax, including land tax, implications if the property remains in the name of the parents?
  • what are the tax and stamp duty implications if the title to the second block is transferred to the adult child?
  • could main residence exemption be lost from date of original purchase to date original dwelling ceased to be occupied? (Sec. 118-150(5) ITAA 1997)

Program 4:  Existing Inter Vivos Trusts and the Estate Planning Glitches

One way of looking at it is that an existing trust will continue to exist on the death of a trustee intrinsically involved in the trust’s operations. However, does this way of thinking assist with ensuring the trust continues on in the most tax effective manner? This session looks at some of the proactive actions that can be addressed in the estate plan, to assist with ensuring tax headaches are kept to a minimum when a change of trustee representation on death occurs, including:

• The family trust election issues that are arising on the death of a test individual
• Is now a good time to modernise the trust deed for:
  • variation powers?
  • beneficiary inclusions/exclusions?
  • streaming?
  • income definitions?
• Division 7A purposes, including sub-trust arrangements?
• Tax issues to consider if varying a trust deed (incl. TD 2012/21)
• Carving out the tax work between the correct professionals when dealing with proactive trust law issues and their tax consequences
• A checklist of housekeeping items to assist with addressing the tax aspects of estate planning involving existing trusts, including:
  • the treatment of unpaid present entitlements and loan balances
  • a list of trust documentation that should be on hand
  • pending vesting date issues

Program 5:  Deceased Estates and the CGT Trigger Points

An important part of administering a deceased estate is being aware of the trigger points that cause a CGT event to occur. Some of these events may not be common knowledge and if they unwittingly go unnoticed, can result in tax headaches and executor liability issues down the track. This session reviews some of the CGT events that may occur when administering a deceased estate, including:

• How CGT applies to pre 20 September 1985 assets in an estate
• How CGT applies to:
  • shares sold by the executor
  • shares transferred to beneficiaries
• How CGT applies to assets left to:
  • non-residents
  • charitable entities
• Tax implications when distinguishing whether an asset “passes” to a beneficiary, or is acquired by a beneficiary under a “power of sale”
• How the CGT small business concessions can be applied to deceased estates
• When the executor is responsible for capital gains tax and when it is the beneficiary’s responsibility
• Practical examples

Program 6: Dealing With the ATO on the Death of a Taxpayer

When the person whose tax affairs you have been administering is no longer around to assist, complications can quickly set in. This session explores the issues that can arise when dealing with the ATO to finalise a deceased’s tax obligations, including:

• How the ATO deals with tax agents, legal practitioners and the authorised contact status when a client dies
• How to access the tax information for a deceased person from the ATO
• Dealing with the ATO when irregularities or omissions of income are uncovered by the executor relating to pre death returns lodged
• Case study exploring managing executor liability with ATO amendment periods (PCG 2018/4)
• How the ATO deals with outstanding tax liabilities when an estate is insolvent
• Whether executor is liable to tax arising from CGT event K3, which subsequently results in insufficient funds held to cover the tax liability?
• Can an executor obtain a “tax clearance” from the ATO to obtain certainty regarding liability exposure?
• Checklist of executor obligations to the ATO

CPD Information

Accountants:  6 CPD hours

Lawyers:  6 CPD units/points (substantive law)

WA Lawyers – TEN is unable to verify that you have earned CPD for this product as we cannot verify that you have listened to the podcast which is a requirement of the LPBWA.  TEN is an accredited provider.