Enquiries made of us suggest that there may be some confusion about the use of losses in the context of a deceased estate. You should bear the following points in mind.
Firstly, tax losses or capital losses of a deceased person cannot be applied against income or gains in their estate. To the extent that a loss incurred by the deceased cannot be applied in their last tax return, it is wasted.
Depending on the extent of any losses, the deceased’s legal personal representative might consider triggering CGT event K3 (if the right circumstances exist), as gains from that event are included in the deceased individual’s last tax return and can be reduced by the losses on hand. [CGT event K3 happens if an asset owned by the deceased person that is not taxable Australian property (for example, most shares in public companies) passes to a beneficiary who is a foreign resident. The event also happens if any asset passes to a tax advantaged entity that is not a deductible gift recipient.]
Secondly, losses in the deceased’s estate (for example from the sale of an asset by the LPR) cannot be transferred to a beneficiary or a testamentary trust established under the Will of the deceased person. A testamentary trust is a separate tax entity from the deceased estate. If the estate losses have not been used in the estate, they too are lost.
Thirdly, if an LPR is required to sell estate assets during the estate administration, they should ensure that as far as possible, the timing of the sales allows for any to be utilised to the maximum extent possible. That is, losses can only be applied against gains in the same or a later income year. So if gain assets are sold in an income year prior to the sale of loss assets, the losses can’t be used to reduce the gains and may ultimately be lost.
Feel free to contact our team should you want to discuss this topic further and potentially have clients who may be in this situation.
This publication is not intended to be and should not be used as a substitute for taking taxation advice in any specific situation. The information in this publication may be subject to change as taxation, superannuation and related laws and practices alter frequently and without warning. Neither BNR Partners Pty Ltd, our employees or agents are responsible for any errors or omissions or any actions taken or not taken on the basis of this publication.