There are times when passing on assets by way of your Will can be very expensive. However there are a few areas within the taxation legislation that are often overlooked which can benefit you and your beneficiaries. For example; the transfer of superannuation to non-dependents and the passing of business assets, to name two.
Considering the passing on of superannuation funds to a non-dependent may result in a tax bill based on 18.5%, there is strategy that can be considered to minimise the impacts of taxation in this area.
Many of us in business hold business assets for several years. We often take the view we will pass these assets on by way of our Will. We may even consider a testamentary trust for the potential beneficiary to add flexibility in the way it can be dealt with.
Assuming the asset has been purchased post September 1985, if the asset is sold to realise the funds the capital gains tax is calculated from the date you purchased it, not from the date of your death. This can have a significant impact. This is particularly relevant in the agricultural industry where the family farm is owned by “mum and dad”.
Assuming you have owned the family farm for longer than 15 years and the next generation is wishing to take over the farm, consider leaving the farm to them prior to your death. Assuming you meet the small business exemptions you are able to sell the farm exempt of any capital gain tax.
Why do this? If for example you purchased 100 megalitres of water at $1,200 per megalitres, or $120,000, today the water is worth $4,200 per meg or $420,000 in total. If the next generation sells the water the capital gain is $300,000. If you sell the water to the next generation today at a time the next generation is taking over the assets of the business, it may be possible for you to be exempt from any capital gains tax. That is, the $300,000 capital gain can be tax free. If the next generation then sells the water their capital gain or loss is the difference between the $4,200 per meg and the value they sell it for.