Minimizing Tax Liability: Estate Share Transfer Strategy for Client

This management letter provides advice to George Spencer, the sole executor and beneficiary of the estate of Alexander Spencer, regarding the tax implications of handling the estate's shares. It recommends transferring the shares to George personally before selling them to potentially minimize tax liability. The letter details how the date of acquisition for tax purposes would be the date of Alexander's death, and how waiting until the estate is settled in 2020 could allow for a fairer assessment of market value and potential benefits from indexation or discount methods for capital gains tax. It also addresses the treatment of shares acquired before September 1985 and encourages George to seek further assistance for cash flow planning and tax minimization. The report includes an annex with details of share purchases.

Management Letter
Client: George Spencer
(Beneficiary)

6th May, 2018
George Spencer
Sole Executor and Beneficiary
Estate of the Late Alexander P Specer
Dear George,
Foremost, please accept my condolence on the death of your father Alexander Spencer, may his soul
rest in peace.
We would also like to extend our gratitude for employing our services with respect to advice on
settlement of the Estates accounts.
The scope of our assignment would be to help you minimize your tax liability and advise on if you can
sell the shares in the estates now or transfer the shares to yourself and then sells them.
In accordance with the scope and in order to help you with minimizing the tax bill on settlement, we
intend to advise you to transfer the shares to yourself and then sell the shares at a later date and avoid
paying a higher tax bill. As per the current details, your father has left an estate of $32,055 (purchase
price of shares) (Refer Annex at end), it is advised to transfer the shares to yourself and then sell it at a
later date.
For Income tax calculations, the date of acquisition for you would be the date on which your father died
which is 15th November 2015 for the purpose of holding and calculation of Capital Gain tax. In your case,
you will be deemed to have taken the asset on the date of your father’s death, i.e. 15th November 2015,
this date is the relevant date for all calculations.
For Income tax calculations, the capital gain in this case, assets would be fair valued on the death and
not on the cost basis that your father Late Mr. Alexander has initially acquired. However, as you
mentioned that your father moved into an aged care unit about 5 years ago and most of his financial
records were lost at that time, so it is advisable to wait until the settlement of the final estate until 2020
as this will help the executor to fairly assess the market value of shares and would subsequently
determine the capital gain tax liability.
If you decide to sell the shares now by estate, the estate will sell the shares for consideration and
subsequently deduct the expenses incurred and transfer you the proceed which will be subject to tax at
a higher rate since you already have an annual income of $200,000 and the holding period will be less
than 12 months and hence “other method” of calculation would be applied by deducting the sales
proceed with the cost and then taxing the capital gain tax.

However, as per our recommendation if you instruct estate to transfer the shares to yourself, you would
have an additional advantage on the control as to when you should sell the shares and thus can control
the liability arising on such sale. If the value of the shares on the date of transfer does not exceed the
value as on the date of the death, then there would be no capital gains arising to you. Moreover, the
entire dividend accruing on the same will also be pocketed by you if you hold the shares in your account.
In your case, shares of National Australia bank were acquired prior to 20 September 1985, which was
date of introduction of Capital gain tax. Your father had acquired the shares prior to 20 September 1985;
the cost base for these shares will be the market value of the asset on the day the person died, i.e. 15
November 2015 and hence no Capital gain tax will be applicable on it.
If you hold the shares till 2020, you will have ample clear figures on what the fair value of the shares are
and then you can take the benefit of calculating tax on “Indexation method” which allows you to
increase the cost base by applying an indexation factor based on CPI up to September 1999 or by
“Discount Method” which gives you a 50% deduction on capital gain tax, the choice will purely be based
on the CPI index and fair value of shares as on the date of sale.
Please make yourself comfortable to contact me of any development in the above case so that I can help
you further by minimizing the tax liability and devise a cash flow schedule to best flow your need and
requirement.
Once again, we thank you for believing in us and choosing us as your tax advisor for the above case and
please do not hesitate to contact us in future about any situation involving the above case. We look
forward to hearing from you and working with you in future.
Thanking You,
Annex:
Share purchase date Amount ($)
National Australia Bank
15th April 1983 2,420
Commonwealth Bank
12th September 1991 6,480
1st November 1993 7,480
22nd July 1996 9,000
14th November 1997 6,675
Total 32,055