Understanding the Tax Implications of Inheritance

Receiving an inheritance can be life-changing, but it also comes with financial responsibilities. While there is no direct inheritance tax in Australia, there are still various tax implications that beneficiaries should consider.

From capital gains tax (CGT) on inherited assets to superannuation death benefits, understanding how the tax system works can help you plan effectively.

This article explains how inheritance tax works in Australia in 2025, how different assets are taxed, and what beneficiaries need to know when handling an estate.

Let’s Get Straight to the Point

For those who want a quick summary, here are the key takeaways:

• No direct inheritance tax exists in Australia, but taxes may apply to certain inherited assets.
• Capital gains tax (CGT) may be triggered when selling inherited property, shares, or other taxable assets.
• Superannuation death benefits may be taxed depending on who receives them.
• If the deceased had outstanding tax debts, the executor must settle them before distributing assets.
• Inherited foreign assets may be subject to taxes in both Australia and the originating country.
• Gifting rules apply if you plan to pass on wealth before death, impacting age pension entitlements.

How Inheritance Is Taxed in Australia?

Unlike some countries, Australia does not impose an inheritance tax. However, this does not mean beneficiaries receive their inheritance tax-free. Several tax rules apply depending on the type of asset inherited and how it is used.

What Taxes Apply to Inherited Assets?

The main taxes that may affect an inheritance include:

1. Capital Gains Tax (CGT) – Applies if you sell an inherited property or other taxable assets.
2. Superannuation Death Benefits Tax – Can apply if the deceased had money in super.
3. Income Tax on Earnings – Rental income from inherited property or dividends from inherited shares is taxable.
4. Foreign Tax Implications – If you inherit overseas assets, they may be taxed locally and abroad.

Each of these taxes has its own set of rules, which we will discuss in the following sections.

Capital Gains Tax on Inherited Property

1. When Is CGT Payable on an Inherited Property?

Inherited property is subject to capital gains tax (CGT) when sold, but some exemptions apply. The key rules include:

• No CGT if sold within two years – If the deceased’s home is sold within two years of their passing, it is exempt from CGT.
• Main residence exemption – If the deceased lived in the property and it remained their main home, no CGT applies when inherited.
• CGT applies if used as an investment – If you rent out the inherited property, any profit from its future sale is subject to CGT.

2. How CGT Is Calculated on an Inherited Property

When CGT applies, it is calculated based on:

1. The property’s original purchase price (if acquired after 20 September 1985).
2. The property’s market value at the date of death (if acquired before this date).
3. Any improvements or renovations made.

The CGT discount of 50% applies if the property is held for more than 12 months before selling.

Superannuation Death Benefits Tax

1. Who Pays Tax on Superannuation Death Benefits?

Superannuation does not automatically form part of a person’s estate. Instead, it is paid to a nominated beneficiary or the deceased’s estate.

Tax implications depend on:

• The relationship to the deceased – Spouses and dependent children receive tax-free super benefits.
• If the recipient is a non-dependent – A tax of up to 17% applies to taxable components.
• If the super is paid to the estate – The tax outcome depends on the ultimate beneficiaries.

2. Minimising Tax on Superannuation Death Benefits

Strategies to reduce tax on inherited super include:

• Withdrawing super before death (if the deceased is over 60).
• Ensuring proper beneficiary nominations are in place.
• Using recontribution strategies to convert taxable components into tax-free amounts.

Tax on Inherited Shares, Investments, and Businesses

1. Do You Pay Tax on Inherited Shares?

Inherited shares and investments are subject to CGT when sold. The key points include:

• If the deceased acquired the shares before 20 September 1985, the cost base is the market value at the date of death.
• If the shares were acquired after this date, the original purchase price is used to calculate CGT.
• Dividends earned from inherited shares are taxable as income.

2. Taxation of an Inherited Business

If you inherit a business, tax obligations include:

• Ongoing business income is taxable.
• CGT applies if you later sell the business.
• Small business CGT concessions may apply if the business is sold.

Proper estate planning can minimise the tax impact for heirs.

Gifting Wealth Before Death – What You Need to Know

1. Are There Tax Implications for Gifting Assets?

Australia does not have a gift tax, but gifting can affect:

• Capital gains tax – If an asset is transferred, CGT may still apply based on market value.
• Age pension entitlements – Large gifts may reduce Centrelink benefits, as they count towards deprivation rules.

2. Gifting Limits and Centrelink Rules

The current gifting limits are:

• $10,000 per financial year per person.
• $30,000 over a five-year rolling period.

Amounts exceeding these limits are counted as assets for Centrelink purposes.

Foreign Inheritances – Tax Considerations

1. Do You Pay Australian Tax on Overseas Inheritances?

Australia does not tax foreign inheritances, but any income earned from inherited assets—such as rental income, dividends, or interest—must be declared on your Australian tax return.

2. Capital Gains Tax (CGT) on Foreign Assets

If you sell an inherited overseas asset, CGT applies based on:

• The asset's market value at inheritance (if acquired before 20 September 1985).
• The original purchase price (if acquired after this date).
• A 50% CGT discount applies if held for over 12 months.

3. Foreign Inheritance Taxes

Some countries impose inheritance taxes, which may reduce your final amount. Check if:

• Foreign tax has already been deducted.
• Australia has a double taxation agreement (DTA) with that country.
• Tax credits apply for foreign tax paid.

4. Key Considerations

• Exchange rates and legal processes may delay access to assets.
• Tax residency can impact taxation rules.
• Specialist tax advice can help navigate international tax laws effectively.

Handling Tax Debts of a Deceased Person

1. Who Is Responsible for Paying Tax Debts?

The executor or administrator of the estate must settle all tax debts before distributing assets. This includes lodging a final tax return (covering income up to the date of death) and, if necessary, an estate tax return (if the estate generates income). Any outstanding taxes must be paid using estate funds before beneficiaries receive their inheritance.

2. What Happens If the Estate Has More Debts Than Assets?

If the estate’s debts exceed its assets, it is considered insolvent. In this case:

• The executor and beneficiaries do not inherit the debt.
• Creditors are repaid in priority order, but some debts may go unpaid.
• No distributions are made to beneficiaries if debts remain after assets are liquidated.

Seeking professional tax or legal advice can help ensure tax obligations are met correctly and assets are handled appropriately.

Conclusion

Inheritance tax may not exist in Australia, but tax obligations still arise depending on what is inherited and how it is used. Proper estate planning can help beneficiaries minimise tax while understanding gifting and inheritance rules ensures that families retain as much wealth as possible.

If you are expecting to receive or leave an inheritance, seeking professional tax advice is always a smart move to navigate Australia’s tax system effectively.