On November 26, 2016 Senator Richard Di Natale, leader of the Greens, recommended that his party consider lobbying for the reintroduction of death taxes in Australia. What is a death tax, and who will it affect?
What is a death tax?
Death taxes exist in many jurisdictions around the world. Typically, they fall into one of two categories:
- Either a tax on a deceased estate (known as an estate tax, or death duty)
- A tax on the beneficiary (known as an inheritance tax)
Estate tax explained
Jurisdictions including the UK, Canada, and various states in the US have an estate tax. In the UK, the first £325,000 of an estate is tax free, with any amount above that threshold taxed at 40%. Similarly, in California, the first USD$5,450,000 of an estate is tax free, with any amount above that threshold taxed at 40%.
Inheritance tax explained
Other jurisdictions, typically European countries, have an inheritance tax. The recipient of an inheritance needs to include that inherited amount in their own tax return, and the tax payable typically depends on the value of the inheritance and their relationship with the deceased. For example, in Germany, a bequest to a spouse of up to €500,000 is free of tax, whereas a bequest to a grandchild of up to €200,000 is free of tax. Amounts above those thresholds will be taxed in the hands of the recipient.
Does Australia have death tax?
No – death taxes were a state-based tax, and death taxes were phased out by all states between 1977 and 1981.
What are the details of the Greens proposal?
Senator Di Natale made his announcement in the context of a speech which (amongst other things) spoke about housing affordability for young people. It is his view that the biggest barrier to young people entering the housing market is the ease with which baby boomers are able to acquire investment properties and so it’s likely to be a tax aimed at investment properties.
However, it’s early days, and Senator Di Natale acknowledged that he wanted to stimulate debate, rather than present a fully fleshed-out policy to the Australian people.
Previous policies might contain a clue. There have been a few different variations, although they all propose to tax estates above a certain value. For some (but not all) models, the family home and the family farm are excluded.
How likely is it that this change will happen?
To be blunt, given both major political parties have spoken out in opposition, it’s unlikely to be a major focus. It might become a topic of conversation leading up to the next election.
How would the proposed changes affect me?
We’ll need to wait for the details on this one, but given the context of Senator Di Natale’s speech, it’s likely to be a tax focused on non-owner-occupied properties (ie. Investment properties). At this stage, there’s no need to make changes to your current circumstances.
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