History of inherited shares?

Hi all

Basically my GF has inherited some shares which we have now sold, the problem is when we go to fill out her tax we dont have any information about when the shares where purchased, the tax accountant is telling us we need to know when they were bought as diffirent CGT applies

Is there any way to find out this info?

thanks

Re: History of shares: Inheritance

I've been through this myself some years ago. From memory, when the shares passed to your GF, that would have been regarded as a gapital gains event at that time, ie. capital gains tax would have (or should have) been paid out of the deceased estate based on the value of the shares at that time. Your GF should then have recieved something from the solicitor stating what the new 'cost base' would be for her to use (which is either the value on the date of death, or date of transfer... not sure). Does she have any such documentation from the solicitor?

Anyway, I'm no tax expert, so you should check with the solicitor that handled the deceased's estate as he/she will know how the transfer was handled.

Re: History of shares: Inheritance

AlterEgo said:

I've been through this myself some years ago. From memory, when the shares passed to your GF, that would have been regarded as a gapital gains event at that time, ie. capital gains tax would have (or should have) been paid out of the deceased estate based on the value of the shares at that time. Your GF should then have recieved something from the solicitor stating what the new 'cost base' would be for her to use (which is either the value on the date of death, or date of transfer... not sure). Does she have any such documentation from the solicitor?

Anyway, I'm no tax expert, so you should check with the solicitor that handled the deceased's estate as he/she will know how the transfer was handled.

Click to expand...

My worth

Partially correct. The new cost base is the date of death of the deceased, as AlterEgo is correct in saying that it is a CGT event, you should only have to provide the death certificate to your accountant. The CGT up until death is paid by the deceased's estate, the solicitor should just have to do an SRN search and then look up the holding to find out the date at which they were bought, and your accountant will be able to work out the new cost base for the transfer of the shares. This would effectively then put the CGT into the Nominal Rate (100% Taxed) or Discounted Rate (50% Taxed), Indexation will not come into it, as from what i am gathering the date of death is greater than 1999. Nominal Rate is if you hold the shares for less than 12 months and the Discounted Rate is where you hold the shares greater than 12 months.

If the shares were transfered to a company in which you're GF and/or yourself is a director then there is also the possibility of a Deferred Tax Asset (DTA) or a Deferred Tax Liability (DTL) depending on if those shares made a profit or a loss (as long as this is done through the company). Putting Equities through companies are a great way to reduce your tax expense and taking the profits from those shares as dividends from the company also institutes Dividend Imputation as well, thereby reducing your overall taxable income at the end of the financial year. I tend to use this strategy for some of my 'better off' clients.

Okay, repeat after me:

DEATH IS NOT A CGT EVENT!!!

If the shares were purchased before 20 September 1985, when CGT was introduced, the cost base is the value at date of death, but CGT is not payable until the shares are sold, calculated on that cost base. In this case the initial cost is irrelevent. Keep a record of the closing share price at date of death.

If the shares were purchased after the introduction of CGT, the cost base is the original purchase price, and it is quite possible for shares to be bequethed to a person, who subsequently dies, and then received by their beneficiary, and so on for decades or centuries without any CGT being payable, until the shares are finally sold, or the law changes.

DEATH IS NOT A CGT EVENT (except as it relates to calculating a cost base for post 9/85 shares) WHILE THE SHARES CONTINUE TO BE HELD BY THE BENEFICIARY.

Of course, if the executor sells the shares, rather than transferring them to a beneficiary, then CGT will be payable by the estate. Possibly a good option if the estate's marginal tax rate is low due to not much other income. Timing the sale can also be very important - eg just after the start of a new f/y, and then promptly wind up the estate.

But maybe the beneficiary would prefer to receive the shares, and only pay tax when they are sold, at their marginal tax rate (say after they have retired).

Of course, you can never rule out a forced sale due to Company takeover.

Hope this helps, but see a good accountant, and check out the ATO website - lots of booklets available covering this. Just my opinion and experience.

Cheers, badger

ok i am about to rip my head off.

basically here is the story

Grandfather and grandmother owns the shares, we have no records of this though.

Grandfather dies in Nov 1985, Grandmother is issued with a new SRN, we dont know though how many shares this was

No documentation is available until 1998, apparently this is when BHP went to an electronic system.

1998 Grand mother shows up on the system as owning 6500 BHP shares

Then in 2001 she recieves another 7600 ish in the BHP billiton merger

2006 Grandmother dies, owning 14100 shares,

GF inherits all 14100 shares

From what i can work out there is two options when recieving shares from a departed one, you can get them with the tax already taken out. or you can inherit them, but also inherit the grand mothers "cost base"

we have the latter from what i can tell.

But how do we work out what our cost base is given

a) we didnt sell all of the shares, only 4000, taking into account the merger in 2001

b) the shares may have originally been bought before 1985 jointly with the GM & GF, therefore subject to different CGT rules

And how the hell do we prove all this. I have rang accountants and BHP, BHP want $25 per year to provide the records, meaning we could be up for 75 years.

Accountants are idiots by the way, the first three we rang all gave different answers ranging from, no CGT at all, and 100% tax

Badger

What happens if say my great great great great garndfather bought a 1000 shares in xyz way back when, but before 1985

Since then these shares have been passed down from beneficiary to beneficiary, until they finally end up with me. Never having CGT paid on them

Is my cost base then worked out from the original purchaser of the shares. or is just worked out between myself and the person i am inheriting them from?

Go and see the solicitor that handled the deceased’s estate. The Public Trustee handled the splitting up of my fathers estate – all the shares my father held went to my mother, and the Public Trustee researched all the history of the shareholdings and provided her with the cost bases that she was to use for any future sales. This info was provided to my mother at the time of settlement of the estate. I'm surprised that your GF wasn't provided this info at the time.

Ahh, now I understand. Actually I was in a similar position when my mother died in 1995, also holding long-held BHP shares, inherited from my father who died back in 1965.

So I do have some records which may help you. If you send me a private message with a postal address, I can send you copies of some correspondence that I had with BHP at the time, in particular regarding bonus issues and their tax treatment. BHP had several bonus issues between 1985 and 1989. I did get a letter from them saying that if the bonus issues were allotted to a related "pre 1995" shareholding, they would be CGT exempt, not sure if that exemption died with your Grandfather. I'll post you a copy of this if you wish (it is dated 6/1/1994).

Hey, it can't be all bad, you've picked up a pretty big sum of money. I think you need a good tax lawyer, even if it costs you a few $K. Maybe phone the law society for a reference.

FWIW, I actually decided to sell all the pre-CGT shares I inherited, take the money, and then start from scratch simply to avoid our kids battling through the mess you're in. And I still do have a reasonable holding in BHP, which the kids can sell and pay tax on, or hold and pay no tax until they decide to.

Cheers, badger

Correction: "pre 1985"

badger

AlterEgo said:

Go and see the solicitor that handled the deceased’s estate. The Public Trustee handled the splitting up of my fathers estate – all the shares my father held went to my mother, and the Public Trustee researched all the history of the shareholdings and provided her with the cost bases that she was to use for any future sales. This info was provided to my mother at the time of settlement of the estate. I'm surprised that your GF wasn't provided this info at the time.

Click to expand...

how the hell some of these people pass exams to actually become accredited is beyond me.

We have spoken to this guy 3 times now, seriously he has been no help and seems like an absolute idiot

Hank Moody said:

Badger

What happens if say my great great great great garndfather bought a 1000 shares in xyz way back when, but before 1985

Since then these shares have been passed down from beneficiary to beneficiary, until they finally end up with me. Never having CGT paid on them

Is my cost base then worked out from the original purchaser of the shares. or is just worked out between myself and the person i am inheriting them from?

Click to expand...

I think your cost base would be the value of the shares on the date of death of the person who owned them on or after 20/9/1985. And that would remain the cost base until they were sold. But I'm not an accountant, so no guarantees, but as an only child involved in winding up 3 parent's estates, I do have some understanding of the system (and a filing cabinet full of related stuff)

Cheers, badger

badger41 said:

Ahh, now I understand. Actually I was in a similar position when my mother died in 1995, also holding long-held BHP shares, inherited from my father who died back in 1965.

So I do have some records which may help you. If you send me a private message with a postal address, I can send you copies of some correspondence that I had with BHP at the time, in particular regarding bonus issues and their tax treatment. BHP had several bonus issues between 1985 and 1989. I did get a letter from them saying that if the bonus issues were allotted to a related "pre 1995" shareholding, they would be CGT exempt, not sure if that exemption died with your Grandfather. I'll post you a copy of this if you wish (it is dated 6/1/1994).

Hey, it can't be all bad, you've picked up a pretty big sum of money. I think you need a good tax lawyer, even if it costs you a few $K. Maybe phone the law society for a reference.

FWIW, I actually decided to sell all the pre-CGT shares I inherited, take the money, and then start from scratch simply to avoid our kids battling through the mess you're in. And I still do have a reasonable holding in BHP, which the kids can sell and pay tax on, or hold and pay no tax until they decide to.

Cheers, badger

Click to expand...

GF has a meeting tomorrow morning with one of the accountants that seemed like he was smart enought to wash my car. he was the pick of the bunch. will see how that goes and PM if required, your assistance is appreciated

To be honest i am considering just putting through the "cost base" as the date the grand mother passed . From what i can tell this is going to be our best price.

If we get audited we will deal with it then. I think it would be very unlikely though.

Should also add that the cost base may need to be adjusted for share splits, bonus issues, consolidations etc. I recall receiving some Pioneer Concrete shares (some post '85, some pre '85) from my Mum's estate. They had multiple bonus issues, and the cost base had to be reduced by each issue, and then reduced again with subsequent issues, but only on the post '85 shares. The whole thing turned into a multi-page spreadsheet, back in the days of Multiplan and Tandy/Dick Smith computers, with cassette tape storage. FUN!

Me again,

This might help a bit.

On 08/05/85, my late Mum held 1658 BHP shares. As a result of bonus issues and share splits, these had become 2627 shares by 05/01/94. So it is likely that back in 1985, and following your Grandfather's death, your Grandmother would have inherited 4115 BHP shares (using the 1996 figure you provided), assuming she did not trade any between then and now. So if you take the date of grandfather's death as the cost base date, this should give you a total value of 4115*share price (if the worst come to the worst, you can get the price on that day from newspaper archives), and then divide that value by the number of of shares currently held, I think that might work.

BHP bonus issues after 9/1985: 19/2/86, 1 for 5; 11/05/87, 1 for 5; 28/04/89, 1 for 10. I have no record of any subsequent bonus issues.

I do have documents from BHP to confirm the changes in my mother's shareholding between 1985 and 1995, and they show no sales nor purchases between those dates. I can post you these if you need them (nothing confidential about them, the shares have long since been sold).

Good luck tomorrow

Cheers, badger

Do you have a SRN/HRN?
If so shoot me a pm and i'll do my best to talk you through it

I deal with this type of thing every day -- so it is nothing new.

Brad

Apologies Badger and Hank I should have clarified my statement a bit better...

badger41 said:

If the shares were purchased after the introduction of CGT, the cost base is the original purchase price, and it is quite possible for shares to be bequethed to a person, who subsequently dies, and then received by their beneficiary, and so on for decades or centuries without any CGT being payable, until the shares are finally sold, or the law changes.

DEATH IS NOT A CGT EVENT (except as it relates to calculating a cost base for post 9/85 shares) WHILE THE SHARES CONTINUE TO BE HELD BY THE BENEFICIARY.

Click to expand...

If the shares are purchased pre 9/85 then no CGT is payable when they are sold. If however, they are transferred at the date of death, as part of a deceased estate after the probate period, then the new cost base is recalculated as at the date of death, even if those shares were purchased prior to 9/85 originally. It would be more beneficial for the estate to sell those shares which were purchased prior to 9/85 - no tax - that way the beneficiary of the will will receive the cash and no taxable liability. When the shares are transferred to the new beneficiary, and the cost base has been adjusted, only the Discount Rate (50%) applies under Section 115-30 of the Australian Taxation Act.

Like many other countries, Australian taxation Law does not allow you to alter the elemental cost base of a CGT asset unless there is a CGT event. This is why i stated that death was a "CGT event" in the basic of senses, because you cannot alter the cost base without it under Australian Law. When a taxpayer's beneficiary or legal representative acquires an asset as the result of the taxpayer's death, the cost base and reduced cost base are modified. According to Section 70-105 of the Taxation Act it states that, if the asset was trading stock of the deceased taxpayer just before death, then the elemental cost base (or reduced cost base) is the amount worked out under this section (s 70-105) as at the date of death.

There are always ways of minimising your tax liability, ensure that the accountant you go with specialises in Tax Effective accounting in relation to estates and trusts.

Thanks for your comments Badger, it has allowed me to clarify things a bit better - Tax Law has changed just a little since 1996.

Also as Badger was stating, make sure you get a decent Accountant!

Have a nice day guys

Gillie said:

Re: History of shares: Inheritance



My worth

Partially correct. The new cost base is the date of death of the deceased, as AlterEgo is correct in saying that it is a CGT event, you should only have to provide the death certificate to your accountant. The CGT up until death is paid by the deceased's estate, the solicitor should just have to do an SRN search and then look up the holding to find out the date at which they were bought, and your accountant will be able to work out the new cost base for the transfer of the shares. This would effectively then put the CGT into the Nominal Rate (100% Taxed) or Discounted Rate (50% Taxed), Indexation will not come into it, as from what i am gathering the date of death is greater than 1999. Nominal Rate is if you hold the shares for less than 12 months and the Discounted Rate is where you hold the shares greater than 12 months.

If the shares were transfered to a company in which you're GF and/or yourself is a director then there is also the possibility of a Deferred Tax Asset (DTA) or a Deferred Tax Liability (DTL) depending on if those shares made a profit or a loss (as long as this is done through the company). Putting Equities through companies are a great way to reduce your tax expense and taking the profits from those shares as dividends from the company also institutes Dividend Imputation as well, thereby reducing your overall taxable income at the end of the financial year. I tend to use this strategy for some of my 'better off' clients.

Click to expand...

This information is not correct ...