Do You Pay Tax on Inheritance in Australia?

Receiving an inheritance can bring a welcome financial boost, but it can also come with plenty of questions. One of the biggest is: will I have to pay tax on it?

The good news is that Australia doesn’t have an inheritance tax. In most cases, you won’t receive a tax bill simply because you’ve inherited money, property, shares or other assets.

But that doesn’t mean an inheritance is always tax-free.

Depending on what you inherit and what you choose to do with it, there can be tax implications down the track. Capital gains tax, income tax and the tax treatment of inherited superannuation can all come into play.

This guide explains exactly when tax applies, what to watch out for, and what steps to take next. At Precision Wealth Management, our advisers work with clients navigating exactly these kinds of questions every day.

 

Is an Inheritance Taxable in Australia?

Australia abolished inheritance taxes and death duties in the late 1970s. So, when you receive an inheritance, whether it’s cash, an investment portfolio, a family home, or a superannuation death benefit, you won’t pay tax simply because you’ve received it.

However, is an inheritance taxable in Australia in other ways? Yes, in some circumstances. Tax may apply when you generate income from inherited assets, when you sell inherited property or shares and make a capital gain, or when you receive superannuation as a death benefit and are classified as a non-dependent. Understanding these three scenarios is the key to knowing where you stand.

 

Inheriting a Property: What You Need to Know About Capital Gains Tax

The Main Residence Exemption

If you inherit the family home, capital gains tax (CGT) does not automatically apply. Provided the property was the deceased’s main residence and was not used to produce income, and you sell it within two years of the date of death, you will generally be fully exempt from CGT.

If you cannot sell within two years, that is not necessarily the end of the exemption. The ATO can extend this timeframe in certain circumstances, such as when the estate is subject to legal disputes, or the property is difficult to sell. Partial exemptions may also apply even outside the two-year window, depending on how long the property was used as a main residence versus for other purposes. This is an area where professional advice can make a meaningful difference.

Investment Properties and the Cost Base

If you inherit an investment property, or a property that the deceased used to generate rental income, CGT will apply when you eventually sell.

The key concept here is the cost base. For assets acquired by the deceased on or after 20 September 1985 (known as post-CGT assets), the beneficiary will generally inherit the deceased’s cost base as it stood at the date of death. That cost base may include the original purchase price and eligible acquisition, ownership, improvement and disposal costs, subject to the usual CGT rules.

For example: if a parent purchased an investment property in 1995 for $200,000, and it was valued at $800,000 at the time of their death, your cost base as the inheritor would not generally reset to $800,000. Instead, it would usually be based on the parent’s existing cost base. If the adjusted cost base was $300,000 and the property was later sold for $850,000, the capital gain would broadly be $550,000 before allowing for selling costs, capital losses, any available CGT discount and other relevant adjustments.

For a deeper look at how this plays out in practice, our post on selling investment property tax advice covers many of the same principles.

For assets acquired before 20 September 1985 (pre-CGT assets), different rules apply.In many cases, a beneficiary’s cost base is the market value of the asset at the date of death rather than the deceased’s original purchase price. The taxation of inherited pre-CGT assets can therefore differ significantly from inherited post-CGT assets. In addition, recent legislative changes have brought pre-CGT assets into the CGT regime from 1 July 2027, meaning future gains on these assets may be taxable under transitional rules that effectively reset the cost base to their market value at that time.

The 50% CGT Discount

If you hold an inherited asset for at least 12 months before selling, you may be entitled to a 50% CGT discount on any capital gain. For inherited assets, the 12-month period can include the time the deceased held the asset, which means you may already qualify for the discount without needing to wait a full year after inheriting. This is an important nuance that is worth confirming with an adviser before you decide when to sell. It is also worth being aware that proposed CGT discount changes on property may affect how this discount applies in future, so staying informed is important.

Note that from 1 July 2027, the 50% CGT discount is being replaced for many assets by a new regime that indexes the cost base and applies a minimum 30% tax on the gain. For inherited assets, the treatment depends on when the deceased acquired the asset and when you sell. The two‑year main residence exemption for inherited homes is not affected by these changes.

 

Inherited Shares: CGT Applies When You Sell

Shares are another commonly inherited asset, and the tax treatment follows a similar logic to an investment property.

You do not pay any tax simply by receiving inherited shares. CGT applies only when you sell them. Your cost base is generally the market value of the shares at the date of the deceased’s death (for post-CGT assets), and any capital gain or loss is calculated from that point. For the purposes of the 50% CGT discount, the ATO treats you as having owned the shares since the deceased acquired them if they were acquired on or after 20 September 1985. If the shares were acquired before that date, the 12‑month period is counted from the date of death.

This means that even if you sell relatively soon after inheriting, you may still qualify for the discount because the deceased’s holding period counts toward the 12-month threshold. If the deceased held the shares for more than 12 months before they passed away, the discount is likely available to you immediately.

Keeping clear records of the date of death valuation for any inherited shares is important. Your accountant or financial adviser can help you obtain these valuations and ensure they are correctly recorded.

 

Income from Inherited Assets

Whether you inherit cash, shares, a rental property, or a bank account, any income those assets generate after you receive them is yours, and it is taxable.

Some practical examples:

• • Dividends paid on inherited shares after you receive them are assessable income in your tax return.
  • Rental income from an inherited investment property is assessable income.
  • Interest earned on an inherited bank account or term deposit is assessable income.

If you inherit cash or a bank account, there is no CGT on the cash itself. The only tax consideration is interest earned after the inheritance is received.

 

Superannuation Death Benefits: Where Things Get More Complex

Superannuation sits outside of an estate and is governed by its own rules. When someone passes away, the trustee of their super fund decides who receives the death benefit. If the deceased has made a valid binding nomination, that direction is followed. If not, the trustee exercises discretion.

How that benefit is taxed depends on two things: whether you are classified as a dependant under tax law, and whether the super was drawn from taxable or tax-free funds.

Who Qualifies as a Tax Dependant?

This is one of the most commonly misunderstood aspects of superannuation death benefits. The legal definition of a “tax dependant” is narrower than most people expect.

Under tax law, dependants include a spouse or de facto partner, a child under 18, someone who was in an interdependency relationship with the deceased, or someone who was genuinely financially dependent on the deceased.

Adult children are usually considered non-dependants for tax purposes, even if they lived at home or had a close relationship with the deceased. The test is financial dependence, not emotional connection or living arrangements.

If you are classified as a tax dependant, the death benefit is generally received tax-free. If you are classified as a non‑dependant (which applies to many adult children), the taxable component of the super death benefit is taxed at up to 17% on the taxable taxed element and up to 32% on any taxable untaxed element (including the Medicare levy). This tax is often withheld by the fund before the payment is made to you. Any non-concessional contributions made when the deceased was alive is tax-free and will not have any tax withheld.

This tax is often withheld by the fund before the payment is made to you, so it is worth confirming with the fund whether tax has already been deducted before you lodge your return. An estate planning recontribution strategy is one approach that can help reduce the tax burden on beneficiaries in exactly these situations and is worth discussing with an adviser before it is too late.

 

If You Are an Executor: Your Tax Obligations

Executors play a specific role in the tax process that goes beyond simply distributing assets.

As an executor, you are responsible for lodging a final income tax return for the deceased, covering the period from 1 July to the date of death. This return uses the deceased’s individual tax file number (TFN).

If the estate continues to earn income during administration, such as rent from a property that hasn’t yet been transferred or dividends from shares still held in the estate, the estate itself may need to lodge a separate trust tax return. A new TFN is required for the estate for this purpose, separate from the deceased’s personal TFN.

As a general rule, income earned by the estate before assets are distributed to beneficiaries is taxed to the estate. Once assets transfer to beneficiaries, income generated from those assets is taxed to the beneficiary. Further, the estate may also be able to sell down assets prior to distributing to beneficiaries and therefore will have different taxation obligations than if the beneficiaries sold down the assets in their own name being taxed at their marginal tax rate.

The ATO expects executors to lodge returns and address tax obligations within a reasonable timeframe. If the estate is complex, or if the deceased had outstanding tax returns, seeking professional help early is strongly advisable. Our post on understanding tax with your financial advisor provides useful context on how financial advisers can support you through this process.

 

Australians with Overseas Connections

If you are an Australian resident inheriting assets from a person who lived overseas, or if you are inheriting foreign assets, the tax picture can become more complicated.

Australia does not impose inheritance tax, but the country where the assets are held may.

If you have any overseas connection to an inheritance, whether through foreign assets, a foreign estate, or your own residency status, you may need to seek advice in both Australia and the country in which the assets are held.

 

How to Minimise Inheritance Tax Obligations

While there is no inheritance tax to avoid, there are practical steps you can take to manage your CGT position on inherited assets.

Knowing how to minimise inheritance tax exposure in Australia means focusing on timing and record-keeping.

Timing Your Sale

If you inherit an investment property or shares, the timing of a sale matters for CGT. Holding the asset for at least 12 months from the date of the deceased’s death, or confirming that the deceased’s holding period satisfies this condition, may allow you to access the 50% CGT discount. Selling in a year when your income is lower can also reduce the effective tax rate on any capital gain.

Keep Thorough Records

Good record-keeping is essential. You should document:

• • The date of death and the market value of all inherited assets at that date (a formal valuation is recommended for property)
  • The original acquisition date and cost of the asset, where relevant
  • Any costs associated with the estate, such as legal fees or agent commissions, which may form part of your cost base

Consider Professional Advice

The rules around inherited assets interact with your personal tax situation in ways that vary significantly from one person to the next. A financial adviser or accountant with estate planning experience can help you make decisions in the right sequence.