Inheritance Archives - Southern Waters Legal

When inheriting jewellery, you might be surprised to learn it can be subject to Capital Gains Tax (CGT), just like other valuable items such as artwork, coins, and antiques. Here’s how CGT can apply to inherited jewellery, and what you need to know to manage it.

Jewellery as a “Collectable” under CGT

For tax purposes, the Australian Tax Office (ATO) treats jewellery as a “collectable” item, meaning it’s subject to special CGT rules.

Jewellery Acquired by the Deceased Before 20 September 1985
If the jewellery was purchased before this date, it’s considered to have been acquired at its market value on the day the original owner passed away. So, the value when the deceased person passed becomes the “cost base” or starting point for tax calculations if the jewellery is later sold.
Jewellery Acquired After 20 September 1985
If the jewellery was bought on or after 20 September 1985, it’s considered to have been acquired at the price the deceased originally paid for it. This initial cost is then used to calculate any future capital gains or losses if the jewellery is eventually sold.
Jewellery Costing Less Than $500
If the jewellery originally cost less than $500, it’s generally exempt from CGT. That means any gain or loss from a later sale can be disregarded.

Selling the Jewellery and Offsetting Losses

If the jewellery is sold at a loss, this loss can only be offset against capital gains from other collectables in the same year or a later one. It can’t offset gains from other asset types, like shares.

Special Rules for Sets

If the jewellery is part of a set, like a pair of earrings or matching bracelet and necklace, the $500 threshold applies to the whole set, not individual pieces. This means that the value of the entire set needs to be considered together for tax purposes.

Why Keeping Records Matters

One of the biggest issues that often arises with inherited jewellery is figuring out when it was purchased and how much was paid for it. Without this information, determining the right CGT approach can be challenging. By keeping records of purchase dates and prices, you can help make things much easier for the people managing your estate in the future.

If you’re managing an estate or have questions about CGT and inherited assets, speaking to a solicitor can help you understand the rules and make sure everything is handled smoothly. To speak with one of our experienced solicitors at Southern Waters Legal, contact us at (02) 9523 5535 or info@southernwaters.com.au.

Early inheritances and gifts towards adult children are increasingly common as the generational wealth gap widens over time. Can such inheritances and gifts be protected in the event of a separation?

We are often approached from both:

1. Parents who intend to give funds to a child and want to protect the funds from a future separation, or have already advanced such funds; and

2. Adult children, who has received or are going to receive funds from their parents and either:

a. Are in a relationship and want to protect the funds in the event of their separation; or

b. Are going through a separation and are wondering what they can do.

Legal Solution

The options for protecting gifts/early inheritances are limited and depend upon a family’s specific circumstances. However, they include:

• Entering into a loan agreement with your child and/or child’s spouse, ensuring such agreement is drafted correctly, is commercial and is complied with. If this is the case though, is it really a gift?

• An adult child entering into a financial agreement with their partner/spouse that provides for the repayment of the contribution from the parents to either the parents, or, to the child prior to any further distribution. For example, if the parents gifted $500,000 to the child, then upon separation, prior to dividing a pool of assets worth $1 million, the child (or child’s parents) are to receive $500,000, before the remaining $500,000 is divided between the child and their partner.

We commonly see agreements prepared in the absence of family lawyers such as caveats on the title of properties, loan agreements and mortgages that do not meet the requirements of the Federal Circuit and Family Court of Australia. When that occurs the Court must ask whether the funds were a gift (and if so, to whom), or a loan. If they are found to be a gift, then the funds are ordinarily part of the pool of assets available for division between the parties.

What you should not do

If ever there is a thought or intention that funds gifted are to be repaid make sure you action it early. We sadly see good intentions and wishes so often forgotten. So do not sit on your hands and hope it will be an amicable separation where intentions are honoured and you see eye to eye. In our experience that does not occur and there is often a disconnect between parents, their child and the child’s spouse.

Unless you are willing for your gift or early inheritance to be included in a property settlement make sure to speak to a lawyer before any movement of money.

Tag Archive for: Inheritance

Understanding how Capital Gains Tax applies to Inherited Jewellery