Aussies are being warned about a potential 'death tax' that could be imposed on families under new changes proposed by the Australian Taxation Office (ATO). The ATO's draft ruling could make it harder for families to avoid capital gains tax (CGT) on the sale of a main residence after a loved one's passing. This is particularly concerning for testamentary trusts, which have become popular for protecting assets and minimizing taxes. Tax expert Belinda Raso warns that beneficiaries may face a hefty tax bill if they don't occupy the inherited home immediately, effectively turning it into a 'death tax'. The ATO has yet to release its final ruling, but these changes have already sparked backlash from experts and could impact more people than the super tax. Australia has never had a formal federal 'death tax' or inheritance tax, making these measures politically sensitive. Some states previously had estate duties, but these were abolished decades ago. Countries like the US, UK, and Canada levy inheritance or estate taxes on estates above certain thresholds, while New Zealand scrapped its inheritance tax in the early 1990s. The proposed changes have caused panic among families, who are now questioning the practicality of occupying inherited homes for tax purposes. The federal government's broader goal of increasing income is also a concern. As baby boomers pass away, the value of inherited assets will rise, potentially leading to significant capital gains taxes. Even with the 50% CGT discount, the main-residence exemption is crucial to prevent massive tax bills that could deplete the estate. The ATO's ruling could have far-reaching implications, affecting not only testamentary trusts but also the broader super tax system. Experts are urging the government for more clarification, as the current situation is causing unnecessary stress for grieving families.
