Is There Inheritance Tax in Australia? The Truth (and What You Actually Pay)

✅ The short answer: no, Australia does not have inheritance tax🔗

Australia abolished its death duties state by state through the 1970s. Queensland was the last state to scrap its death duty, in 1979. The federal estate duty was also abolished that year. Since then, no federal or state government has reintroduced either tax. If you've inherited money, property, or shares from a family member, you will not receive a tax bill simply because you inherited something.

Why do so many Australians still search for this? Because inheritance tax is very much alive in the UK, the US, and across much of Europe, and Australians with overseas family or exposure to international media naturally assume something similar must exist here. It doesn't, but that doesn't mean inheriting is tax-free in every sense.

⚠️ But here's the catch🔗

While there's no inheritance tax as such, three areas commonly catch families off guard:

1. Capital gains tax when you sell an inherited asset
2. Tax on superannuation death benefits, particularly for adult children
3. Income tax on any earnings from an asset you hold onto after inheriting it

📉 Capital gains tax (CGT) on inherited assets🔗

You don't pay capital gains tax when you inherit an asset. The tax event happens later, when you sell. What you owe then depends heavily on when the deceased originally acquired the asset, and the key date is 20 September 1985, when Australia's CGT regime began.

Pre-CGT assets (acquired before 20 September 1985): your cost base is set at the market value on the date of death, generally favourable, since you only pay CGT on growth above that market value from the date you inherited it.

Post-CGT assets (acquired on or after 20 September 1985): you inherit the deceased's original cost base, not the market value at death. If the asset grew significantly during their lifetime, you're inheriting a large embedded capital gain along with it. For the 50% CGT discount, the ATO treats you as having held the asset from the deceased's original acquisition date, so if they held it more than 12 months before death, you can generally access the discount when you sell, even if you sell shortly after inheriting.

🏡 The family home: CGT exemption rules for an inherited property🔗

The 2-year rule: if the property was the deceased's main residence just before death and wasn't used to produce income, you have up to 2 years from the date of death for settlement to occur to qualify for a full CGT exemption. You can rent the property out during those 2 years without losing the exemption, different from the standard main residence rules that apply to living owners. The clock starts at the date of death, not when probate is granted, which matters for executors since probate can take months and that time still counts against the window.

The eligible person rule: if a surviving spouse, or a person with a right to occupy the property under the will, lives in it as their main residence from the date of death until it's eventually sold, the full CGT exemption applies regardless of how long that takes, no 2-year pressure at all.

🎯 The essential: A draft ATO ruling (TD 2026/D1) proposes tightening the "right to occupy" test, requiring the person be expressly and specifically named in the will rather than merely allowed to occupy at a trustee's discretion. It's still a draft as of this article and hasn't been finalised, but if you're relying on this exemption for a testamentary trust or a discretionary arrangement, get advice before assuming it will hold up.

What happens if you miss the 2-year window: the full exemption is generally lost, and a partial exemption may apply based on time-based apportionment. The ATO can extend the 2-year period for exceptional circumstances outside your control, a will dispute, estate administration complexity, or settlement delays outside your control, but not for commercial reasons like waiting for prices to rise or renovating for a higher sale price.

🏦 Tax on superannuation death benefits🔗

This is the area that surprises families most, and the tax bill can be substantial. We cover the full mechanics in our dedicated guide to superannuation death benefit tax, but here's the shape of it.

Super does not pass through the will. It's not part of the estate, and it doesn't automatically go to whoever is named in the will. Instead the super fund trustee pays it according to the member's binding death benefit nomination, or the trustee's own discretion if none exists, and it can be directed to the estate only if the nomination says so.

Who is a "tax dependant"? Tax dependants include a spouse or former spouse, a child under 18, a person in an interdependency relationship with the deceased, and anyone who was financially dependent on the deceased. Death benefits paid to tax dependants are completely tax-free.

The adult children problem: an adult child can receive a super death benefit, they're a dependant under superannuation law, but they're not automatically a tax dependant unless they were financially dependent on the deceased or in an interdependency relationship. Most adult children are neither, meaning a typical adult child receiving a parent's super death benefit will pay tax on it.

The taxed element is the most common outcome, applying to the vast majority of super. The untaxed element is rarer, mainly relevant to some public sector defined benefit schemes. These rates come from the ATO's Schedule 12 tax table for superannuation lump sums.

What can you do about it? Directing super to a dependant spouse first keeps the benefit tax-free. If all potential beneficiaries are non-dependants, directing super to the estate avoids the Medicare levy component, since the estate itself doesn't pay Medicare levy on death benefits, a modest but real saving. Non-dependants also can't receive super as an income stream, they must take it as a lump sum, which limits any ability to spread the tax impact. The best time to think about this is well before it becomes relevant, ideally when reviewing a binding death benefit nomination.

💵 Income tax on earnings from inherited assets🔗

While you hold an inherited asset, any income it generates is taxed at your marginal tax rate in the ordinary way. Rent from an inherited investment property, dividends from inherited shares, and distributions from inherited managed funds all go on your tax return. This isn't a special "inheritance rule", it's just how income tax works, but it's worth flagging since some people assume inherited assets carry some ongoing tax-free status. They don't.

🎁 What about gifts and money received while someone is alive?🔗

Australia has no gift tax. If someone gives you money or assets while alive, you don't pay tax on the gift itself. There's a catch for the giver though: if they transfer an asset, rather than cash, CGT may apply to them at the point of transfer, because a transfer is treated as a disposal at market value for CGT purposes. The recipient's cost base is then set at that market value. Centrelink also has separate gifting rules affecting Age Pension entitlements.

If proper estate planning hasn't happened yet, in your own family or one you're helping to sort out, that guide walks through the documents that actually matter, and why leaving them until later usually costs more, in time and money, than doing them now.

❓ Frequently asked questions🔗