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I. Present Duties and Grossing-Up

24.B1. The present Commonwealth estate and gift duties favour lifetime giving as against bequeathing property on death. This may be illustrated as follows. Assume that a taxpayer dies domiciled in Australia and by his will bequeaths all of his estate to persons who are not related to him, and that the value of the estate is $600,000. The total duty payable, ignoring duties at the State level, will be $161,400. Assume that another taxpayer with an estate of $600,000 makes a gift of cash of $400,000, three months before death, to a person not related to him, files a gift duty return, is assessed and pays the duty. Assume also that the value of the remainder of his property does not change between the gift and death. In this case the total duty payable will be $131,683, calculated as follows:

                     
Gift  400,000 
Gift duty  105,600 
Actual estate after gift  200,000 
less Gift duty paid out of estate  105,600 
Actual estate on death  94,400 
plus Notional estate  400,000 
Estate on death  494,400 
Gross estate duty  131,683 
less Credit for gift duty  105,600 
Estate duty liability  26,083 

Total estate and gift duty is thus $29,717 less than the duty on the estate of the first taxpayer. There would, of course, be no tax saving in the second case if the notional estate were grossed up, for estate duty purposes, by the amount of gift duty on the gift.

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