Monthly technical briefing - August 2025

Recent developments

Welcome to the August Adviser query of the month and technical briefing, an update of recent technical developments for financial advisers for the period from 26 June 2025 to 25 July 2025.

In this edition, the Adviser query of the month looks at the tax implications of making a charitable donation via a will.

Adviser query of the month

Tax considerations of making a charitable donation via a will

Question

My client is wanting to make a charitable donation via their will.

To make the donation, the estate will sell an asset with a market value of $200,000 that currently has an unrealised capital gain of $50,000, after factoring in the 50 per cent discount. The sale proceeds will be donated to the charity.

Will the client’s estate receive a tax deduction for the donation to offset the capital gain and other income?

Answer

No, donations made by an estate are not entitled to a tax deduction. Assuming a marginal tax rate of 30%, the estate will have a tax liability of $15,000 (noting that estates aren’t liable for the Medicare levy).

An alternative scenario worth considering is for the estate to donate the asset to the charity instead of selling the asset and donating the proceeds.

In this alternative scenario, the realised capital gain would be disregarded. As a result, there would be a $15,000 tax saving and therefore $15,000 more to pass to beneficiaries of the estate (whether this be the charity or other beneficiaries).

Under this scenario, it’s advisable to contact the specific charity to confirm their ability to receive a donation by way asset transfer.

A further option worth considering is making the donation while the client is alive. This could be more tax effective, depending on the client’s circumstances. For instance, if they were to sell the asset and donate the full proceeds of $200,000, they would receive a tax deduction for the full $200,000.

This tax deduction could then offset the net realised gain of $50,000 and provide a further tax deduction of $150,000 that could be used to offset other assessable in the current year or carried forward for use in future years (noting that carried forward capital losses are lost once the individual passes away).

Assuming the client can use this tax deduction over a few years at a marginal tax rate of 32% (including Medicare levy), they will not pay tax on the realised capital gain and will save tax of $48,000 on other income. Overall this option provides a tax saving of $63,000 when compared to the original strategy of selling the asset in the estate and donating the proceeds.

Making donations while alive can provide a sense of joy or satisfaction though also depends on the client having sufficient assets/income to live off after making the donation. A combination of the different options could also be considered.

Legislative developments

Changes ahead

It has been a number of months since the Federal Parliament last sat due to the calling of the 3 May 2025 election.

A number of topics relevant to financial advice are expected to be included in bills in the coming sittings, including the Division 296 tax changes for those with large super balances.

In the first sitting, the Government introduced a bill (Universities Accord (Cutting Student Debt by 20 Per Cent) Bill 2025) to the House of Representatives that will change a number of aspects relating to the Higher Education Loan Program (HELP), including:

• Reducing debts at 1 June 2025 by 20 per cent,
• Increase the minimum repayment threshold from $56,156 to $67,000 for the 2025-26 year, and
• Change the repayment methodology so that compulsory student loan repayments are calculated only on income above the new $67,000 threshold rather than a percentage of all repayment income.

We’ll keep track of the changes as they occur and keep you updated each month.