The tax consequences of inheriting property

When it comes to succession planning, the focus often lands on dividing assets and deciding who gets what. But for trade businesses and maintenance franchises in their early years, it’s crucial to consider the tax implications of passing assets to your beneficiaries. Smart planning now can protect your hard-earned legacy and reduce the tax burden for your heirs.

Inheriting business assets

When assets like tools, vehicles, or even business equipment transfer ownership after death, capital gains tax (CGT) is often triggered. However, there are specific exemptions to help ease the tax burden. For instance, if the asset is passed to a legal personal representative (executor) or beneficiary who is a resident of Australia, the tax rules may defer CGT until the asset is sold.

If you're leaving behind business assets, your successors need to understand the tax impact. For example, inheriting tools or equipment purchased after 1985 (post-CGT assets) means the original purchase price becomes the cost base for tax purposes. If those tools were acquired before 1985 (pre-CGT assets), their cost base resets to the market value at the time of your passing.

Inheriting property for business or personal use

Let’s say you’re passing on a property used as part of your franchise operations. If the property was your main residence and not used for income purposes, there could be a full or partial CGT exemption if sold within two years of your passing. If the property was rented or used as part of the business, additional tax considerations apply.

For trade businesses, properties like commercial sheds or warehouses may require careful evaluation to determine their tax treatment upon inheritance. Factors like depreciation schedules and usage post-inheritance can significantly affect tax obligations.

Inheriting business shares or units

If your franchise operates under a unit trust or you hold shares in a trade cooperative, these assets may also be subject to CGT. The tax outcome depends on the original purchase date and whether the trust or cooperative was Australian-based. Business owners should document these details clearly to ensure a smooth transition.

For example, if you hold shares acquired post-1985, the cost base will generally align with the original purchase price. If acquired pre-1985, the cost base typically resets to the market value at the time of your passing.

Inheriting foreign business assets

Many trade businesses source materials or have investments overseas. If your successor inherits foreign assets, such as a property or shares, the cost base will generally be the market value at the time of death. Be aware of potential double taxation—gains taxed overseas might also incur tax in Australia, though offsets can sometimes apply.

Plan for profit, scale for success

For trade businesses and maintenance franchises, understanding these tax rules isn’t just about compliance - it’s about ensuring your hard work benefits your successors. The decisions you make now can save your heirs from unexpected tax burdens, helping them maintain profitability and continue growing the business you built.

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