Beware If You Have Foreign Beneficiaries of Your Will!

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Capital Gains Tax (CGT) generally doesn’t arise where assets pass to beneficiaries through a deceased estate.  One of the exceptions to this rule is when an asset passes to a tax-advantaged entity, including a foreign resident. In this case, a CGT event K3 may arise.

For assets passing to foreign residents, a K3 event only arises if the asset is not a Taxable Australian Property (TAP), and the deceased was an Australian resident prior to death. 

TAP includes:

  • Direct and indirect interests in real property in Australia;
  • Mining, quarrying, or prospecting rights in Australia;
  • A CGT asset that has been used in carrying on a business through a permanent establishment in Australia; or,
  • An option or right over one of the above.

A K3 event doesn’t arise in relation to taxable Australian property as the foreign recipient of those assets will be subject to CGT in Australia when they are eventually sold.

Examples of assets that are not taxable Australian property include listed shares, shares in private companies, and units in unit trusts.  Foreign residents are not generally liable for CGT in Australia on assets that are not taxable Australian property, so the K3 event is designed to prevent assets from exiting the Australian tax net without being taxed.

Please keep the above in mind when you prepare your will. It is also a good idea to regularly review your will when your family’s circumstances change, including when a potential beneficiary moves overseas.

If you have any queries in relation to this article, please don’t hesitate to contact your client manager to discuss.

Author – Darren O’Malley

*Correct as of 27 October 2022

*Disclaimer – this article has been produced by Kreston Stanley Williamson as a service to its clients and associates. The information contained in the article is of general comment only and is not intended to be advice on any particular matter. Before acting on any areas contained in this article, it is imperative you seek specific advice relating to your particular circumstances. Liability limited by a scheme approved under professional standards legislation.

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