Hilda* is the executor of her late father’s will and has a question regarding property sales and capital gains tax. BNR Partners director Ian Raspin offers some guidance.
Hilda* is the executor of her late father’s will and has a difficult question relating to property bought and sold through a company. Ian Raspin, a director at BNR Partners, where he heads the estates and trusts division, offers an explanation for how she should proceed.
I am executor of my late father’s estate and he, in 1995, invested in a company that buys property units, which meant he handed over money to a company that chose what to do with his and many other investors’ money. They bought some properties (classified as an illiquid investment) and late last year decided it was time to sell the properties and return the proceeds to the investors as all required the money. The investment is in my father’s name still but known as ‘the late …’. He passed away in August 2018.
When the company sells the properties and distributes his share to his bank account (also known as ‘the late …’), will there have to be capital gains tax charged and, if so, how does the tax department go about collecting the tax? Do I have to contact them? Or because it is still in my late father’s name and will be transferred as cash, is it okay to distribute the money to the beneficiaries without that worry?
A. The legal advice we have received is as follows:
Prima facie, there would be tax payable on this, possibly by both the company and the estate (or beneficiaries). The executors would be well advised not to distribute the funds until they have fully assessed and paid any associated tax, as they are personally liable for estate tax debts if they distribute the estate assets and a future tax debt arises. This liability is discussed in this ebook.
This has a number of potential complexities attached to it, to which it may not be possible to respond in sufficient detail here. To really assess this, they would need to provide details on:
- When did the father acquire the shares in the company (pre or post September 1985)?
- Can we confirm if this really is a company, or is it actually a trust?
- Has the father’s estate been fully administered as yet? Or how far through is this process?
- Was the father a resident or non-resident for tax purposes?
- Are the estate beneficiaries all Australian residents?
- What is or was the residency of the executor?
* Not her real name
Ian Raspin is a certified practising accountant and a director of BNR Partners, where he heads the firm's estates and trusts division.
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