Capital losses and death… There still is some life in the losses

In relation to prior year net capital losses, if a deceased person had any unapplied net capital losses when they died, these can be taken into account in their final (date of death) return, but can’t be passed on to the beneficiary or legal personal representative to offset against any net capital gains.

So the only way to use the losses is to have a capital gain happen before death as once they are dead the losses disappear.

There is only one situation where you can retrospectively (after death) do something to use the capital losses.

Generally, when CGT assets are transferred under a will no CGT is payable as a CGT rollover applies. However, if the CGT asset is transferred under the will to a “tax preferred entity” it is deemed that the deceased transferred the shares to the tax preferred entity at market value just before they died.

So if the share owned by the deceased are transferred under the will after the death to a non resident, a charity or a complying super find, in the tax return of the deceased (their final return) the uncrystalised capital gain on the shares becomes taxable… and any capital losses the deceased had can be applied against the gain.

If shares were transferred to a super fund under a will, and the deceased person had capital losses, there would be no CGT payable due to the losses offsetting the gain.

Interestingly, the superfund would get a cost base equal to the market value at the time of death. In other words the capital losses have been used to increase the cost base of the shares in the super fund rather than just disappearing

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About Ken Mansell

As a stay at home Dad most of the week this is my way of pretending I am still the tax counsel of ASX and SEC listed companies, working at big 4 firms, working at the Federal Treasury, on the Henry Review and at Parliament House for the previous government.
This entry was posted in Income Tax, Planning Idea, Planning Stuff. Bookmark the permalink.

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