Death, taxes and tax deductions: there’s a way to get there (& I’ll figure it out)**

As is often quoted, there are only three certainties in life, death, taxes and changes to the superannuation system.

There are some particular intricacies in relation to death and taxes as they relate to charitable giving, and wherever there is an intention for maximising the benefits passing to a charity, the tax implications must be considered.

Broadly, the three key rules to be aware of are as follows:

1. Contributions made via a deceased estate to a deductible gift recipient (DGR) are not deductible. This should be contrasted with the same gift being made by the will maker prior to death which are deductible.
2. While generally assets passing via a deceased estate can access capital gains tax (CGT) roll-over, gifts to a tax exempt entity do not trigger any roll-over as such. Rather, on receipt by the DGR of a specific asset gifted under a will, the tax liability is simply disregarded and the DGR inherits the deceased’s cost base (or market value at date of death if a pre-CGT asset). In turn, as the DGR is tax exempt it should have no tax liability on any subsequent disposal of the asset.
3. If an asset of an estate is sold in order to make a cash contribution to a DGR, the tax liability will not be ignored, and in turn, the estate is not entitled to a deduction (see Tax Office Interpretative Decision 2003/173).

Depending on the factual matrix, best practice is often to utilise a memorandum of directions to achieve the willmaker’s objectives. For example, distributing assets to a particular beneficiary and then allowing them to make the desired contribution to the DGR and obtain the tax deduction.

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** For the trainspotters, the title of today's post is riffed from the Bob Dylan song ‘Highlands’.

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