Inheritance Tax In Australia & The 3 Hidden Taxes That Can Apply

Australian Inheritance Tax & What Every Australian Needs to Know

(Updated 15/09/2026)

Inheritance tax in Australia is not a standalone tax on assets received from a deceased estate. However, an inheritance can still create tax consequences through capital gains tax, tax on certain superannuation death benefits and income tax on earnings generated by estate or inherited assets.

Quick Summary

Australia has no inheritance tax, but tax can still arise when inherited assets are sold, super passes to a non-tax dependant, or an estate and its beneficiaries earn income. The outcome depends on the asset, its history, the beneficiary and how the estate plan is structured.

Table Of Contents

• Does Australia Have An Inheritance Tax?
• 1 – Capital Gains Tax On Inherited Assets
• 2 – Tax On Superannuation Death Benefits
• 3 – Income Tax On Estates & Inherited Assets
• Tax Planning & Estate-Planning Considerations
• Consider International Tax Before Distributing Overseas Assets
• Can You Avoid Tax On An Inheritance?
• What’s Changing & When
• Final Thoughts
• Frequently Asked Questions (FAQ)

Australians frequently ask whether they will pay tax when they receive an inheritance or whether their beneficiaries will lose part of an estate to tax.

Australia does not currently impose a standalone inheritance tax, estate tax or death duty simply because wealth passes from one person to another. Receiving cash or other assets from a deceased estate will not ordinarily create an immediate tax bill for the beneficiary.

However, this does not mean every inheritance is tax-free. Three existing areas of the Australian tax system may affect an estate or its beneficiaries:

1. Capital Gains Tax on inherited or estate assets
2. Tax on certain superannuation death benefits
3. Income tax on income earned by the estate or beneficiaries

These taxes do not apply automatically to every inheritance. The outcome depends on what the deceased owned, when and how each asset was acquired, whether superannuation is involved, who receives the benefit and what happens to the assets after death.

Does Australia Have An Inheritance Tax?

Australia does not have a formal inheritance tax. There is no general tax imposed on a beneficiary simply because they receive cash, property, shares or other assets from an Australian deceased estate.

Australian federal estate duty was abolished in 1979 after the states had begun removing their corresponding death duties. There is currently no equivalent general tax triggered solely by a person’s death or the transfer of their estate.

That distinction is important. Although Australia has no inheritance tax, existing CGT, superannuation and income-tax rules may still produce a tax liability.

Potential tax	When it may arise	Who may pay it
Capital Gains Tax	An inherited asset is sold or another CGT event occurs	The estate or beneficiary disposing of the asset
Superannuation death-benefit tax	A taxable super death benefit is paid to someone who is not a dependant for tax purposes	The beneficiary or, in some cases, the deceased estate
Income tax	The estate or beneficiary earns rent, interest, dividends or other assessable income	The estate or beneficiary receiving the income

1 –  Capital Gains Tax On Inherited Assets

Death does not generally trigger an immediate CGT liability when an asset passes to the deceased’s legal personal representative or a beneficiary. CGT is commonly deferred until the estate or beneficiary later disposes of the asset.

There are exceptions, particularly where assets pass to certain tax-advantaged entities or foreign residents. The general rollover should therefore not be assumed to apply in every estate (ATO).

How Is The Cost Base Of An Inherited Asset Calculated?

The cost base does not automatically reset to the asset’s market value when someone dies. It also does not always remain equal to the deceased’s original purchase price.

The correct treatment depends on factors including when the deceased acquired the asset and whether special rules apply.

Circumstance	General cost-base treatment
The deceased acquired the asset before 20 September 1985	The beneficiary will commonly use the asset’s market value at the date of death
The deceased acquired the asset on or after 20 September 1985	The beneficiary will generally inherit the deceased’s cost base
The asset was the deceased’s main residence	Special main-residence and market-value rules may apply
The asset passes to a foreign resident or tax-advantaged entity	The normal deceased-estate rollover may not apply

The cost base may include more than the original purchase price. Acquisition costs, stamp duty, professional fees, eligible improvements and certain ownership or disposal costs may also be relevant.

Because records can be difficult to reconstruct years after someone dies, executors should obtain historical purchase documents and date-of-death valuations where required.

Example: Inheriting An Investment Property

Suppose a parent purchased an investment property in 1990 for $200,000. The property is worth $1.2 million when they die and is later sold by the beneficiary for $1.3 million.

Because the property was acquired after 19 September 1985, its cost base will generally carry across rather than automatically resetting to $1.2 million. However, the taxable capital gain is not necessarily $1.1 million.

The calculation may also include eligible purchase costs, capital improvements, ownership costs and selling expenses. The CGT discount may be available if the relevant requirements are satisfied, but it should not be described as an automatic rule that means the beneficiary simply “pays tax on 50%” in every case.

Inherited Main Residences And The Two-Year Rule

An inherited home may qualify for a full or partial CGT exemption. The outcome depends on matters including:

• When the deceased acquired the property
• Whether it was their main residence immediately before death
• Whether it was being used to produce income
• Who occupied the property after death
• When the legal personal representative or beneficiary disposed of it

A complete exemption may be available where a qualifying dwelling is disposed of within two years of the deceased’s death. Other occupation-based exemptions may apply where the home is occupied by the deceased’s spouse, a person with a right to occupy under the will or an eligible beneficiary.

The Commissioner of Taxation can allow additional time beyond two years in appropriate circumstances. This is not automatic, so executors should not assume that delays in probate, disputes, renovations or sale arrangements will always be accepted (ATO).

2 – Tax On Superannuation Death Benefits

Superannuation requires separate planning because it does not automatically form part of a person’s estate.

When a member dies, their super fund trustee normally pays the death benefit in accordance with superannuation law, the fund’s governing rules and any valid death-benefit nomination. The benefit may be paid directly to an eligible beneficiary or to the deceased’s legal personal representative for distribution through the estate (ATO).

Whether tax applies depends largely on:

• Whether the recipient is a dependant for tax purposes
• The benefit’s tax-free and taxable components
• Whether the taxable component contains a taxed or untaxed element
• Whether the benefit is paid as a lump sum or income stream
• The ages of the deceased and recipient where an income stream is involved

Who Is A Superannuation Death-Benefit Tax Dependant?

For tax purposes, a dependant can include:

• A spouse or former spouse
• A child under 18
• A person who was financially dependent on the deceased
• A person who had an interdependency relationship with the deceased

An adult child is not automatically a tax dependant. An adult child who was financially independent will generally be treated as a non-tax dependant, even though they may be permitted to receive the benefit under superannuation law.

The distinction between an eligible super beneficiary and a dependant for tax purposes is important. A person can be legally eligible to receive a super death benefit while still being liable for tax on part of it.

How Are Lump-Sum Super Death Benefits Taxed?

The following table provides the general treatment of a lump-sum death benefit. Different rules can apply to superannuation income streams and benefits paid through an estate.

Recipient and component	General treatment
Tax dependant receiving a lump sum	Generally tax-free
Non-tax dependant receiving the tax-free component	Tax-free
Non-tax dependant receiving a taxed element	Taxed at a maximum rate of 15%, plus Medicare levy where applicable
Non-tax dependant receiving an untaxed element	Taxed at a maximum rate of 30%, plus Medicare levy where applicable

This means saying that an adult child can pay “up to 17%” is incomplete. That may reflect the maximum rate on a taxed element after allowing for the Medicare levy, but an untaxed element can face a higher rate. Treatment may also differ when the benefit is paid to the deceased estate rather than directly to the beneficiary.

The taxable outcome should be calculated using the member’s actual super components and proposed payment pathway.

Example: Super Paid To An Independent Adult Child

Assume a widowed parent leaves a $500,000 super death benefit to an adult child who was not financially dependent on them.

If $100,000 is a tax-free component and $400,000 is a taxable taxed element:

• The $100,000 tax-free component will generally remain tax-free
• The $400,000 taxed element may be taxed at up to 15%
• Medicare levy may apply if the benefit is paid directly to the beneficiary

If the fund contains an untaxed element, a maximum rate of 30% plus Medicare levy may apply to that element. The precise result depends on the fund, the benefit components, the recipient and whether payment is direct or through the estate.

Should You Withdraw Super Before Death?

Some people consider withdrawing super during their lifetime so that the money can pass as cash rather than as a taxable super death benefit. This can be appropriate in limited circumstances, but it should not be treated as a standard solution.

Before acting, consider:

• Whether the member has legally satisfied a condition of release
• The tax treatment of the withdrawal
• How removing money from super affects investment earnings
• The member’s future retirement and aged-care needs
• Whether gifting affects Centrelink means testing
• The loss of control and asset protection after making a gift
• The risk of death occurring before the strategy is completed

Centrelink generally allows a person to gift up to $10,000 in one financial year and no more than $30,000 across five financial years without the excess continuing to be assessed under the deprivation rules. These are social-security thresholds, not tax-free gifting limits (Services Australia).

3 – Income Tax On Estates & Inherited Assets

An inheritance itself will not ordinarily be included in a beneficiary’s assessable income. However, income subsequently earned from inherited assets is generally taxable.

For example:

• Rent from an inherited investment property is assessable
• Interest earned on inherited cash is assessable
• Dividends from inherited shares are assessable
• Business or trust distributions may be assessable

The relevant taxpayer depends on whether the asset is still being administered by the estate or has been transferred to a beneficiary.

Income Earned During Estate Administration

A deceased estate is treated as a trust for tax-administration purposes. The legal personal representative may need to obtain a tax file number, lodge trust tax returns and pay tax on income earned while administering the estate.

The ATO provides concessional tax treatment for deceased estates during the first three income years. Different rates can apply after that period, so unnecessarily prolonged administration can have tax consequences (ATO).

The executor may also need to lodge the deceased person’s final individual tax return, covering the period from the beginning of the financial year to the date of death.

Income Earned After Distribution

Once an asset has been distributed, the beneficiary will generally declare the income it produces in their own tax return.

For example, a beneficiary who receives a rental property does not ordinarily pay tax merely because they inherited it. They must, however, declare subsequent rental income and may face CGT when the property is eventually sold.

This distinction prevents two different events from being confused:

• Receiving the inherited asset
• Earning income or making a capital gain from that asset

Tax Planning & Estate-Planning Considerations

Good estate planning is not simply about reducing tax. It should also provide appropriate control, liquidity, beneficiary protection and administrative certainty.

Review Your Superannuation Nominations

MoneySmart indicates a will does not necessarily control superannuation. Review any binding or non-binding death-benefit nominations and confirm:

• Whether the nomination remains valid
• Whether it lapses
• Whether each nominated person is legally eligible
• Whether the benefit should be paid directly or through the estate
• The likely tax treatment for each beneficiary

Consider Testamentary Trusts Carefully

A testamentary trust is created under a will and begins operating after death. It may provide flexibility, control and protection for beneficiaries, particularly minor children or beneficiaries with financial, relationship or creditor risks.

Income distributed to minors from a testamentary trust can sometimes qualify as “excepted trust income” and be taxed at ordinary individual rates rather than the higher rates normally applied to minors.

However, this concession does not automatically apply to all income earned by the trust. It is generally directed towards income derived from assets transferred from the deceased estate and eligible proceeds or accumulations. Adding unrelated assets to the trust may not produce the same tax treatment.

A testamentary trust should therefore be designed with legal and tax advice rather than promoted as a guaranteed tax-saving structure.

Keep Reliable Asset Records

Executors and beneficiaries should retain:

• Original purchase contracts
• Stamp-duty and legal-cost records
• Evidence of capital improvements
• Historical valuations
• Records showing how a property was used
• Superannuation component information
• Estate-administration accounts

Missing cost-base records can increase uncertainty and may result in more tax being paid than necessary.

Be Careful With Family Trust Assets

Assets legally owned by a family trust will not ordinarily form part of an individual’s personal estate. However, that does not mean the trust automatically “bypasses probate” without further consequences or that its assets are completely protected.

The trust deed, appointor and trustee succession provisions, unpaid beneficiary entitlements, loans owed to the deceased and family-law or creditor circumstances can all affect the result. Trust control should be reviewed as part of the estate plan.

Consider International Tax Before Distributing Overseas Assets

Receiving an overseas inheritance is not automatically taxable in Australia. However, foreign income, gains on later disposal, foreign estate or inheritance taxes, the residency of the deceased and beneficiaries can create cross-border obligations (ATO).

An Australian tax resident generally needs to declare assessable foreign income, including income subsequently earned from inherited overseas assets. Foreign tax offsets may be available where tax has also been paid overseas (ATO).

Can You Avoid Tax On An Inheritance?

Many Australian inheritances do not generate an immediate tax liability. Some may never result in tax—for example, a cash inheritance, a qualifying super death benefit paid to a tax dependant or an inherited home that satisfies the main-residence exemption.

The practical objective is not to “avoid inheritance tax,” because Australia does not impose one. It is to identify which existing taxes could apply and structure the estate appropriately before death.

Useful planning may include:

• Reviewing asset ownership and cost-base records
• Updating wills and superannuation nominations
• Considering the tax characteristics of intended beneficiaries
• Providing liquidity for tax and estate expenses
• Using testamentary trusts where suitable
• Planning for overseas assets and beneficiaries
• Coordinating financial, tax and legal advice

Strategies should be assessed against the deceased’s financial security and the family’s broader objectives, not solely by the estimated tax saving.

What’s Changing & When

Australia still has no inheritance tax, and none of the reforms below introduce one. However, several significant changes to capital gains tax, superannuation and trust taxation have either commenced or been legislated with future start dates. Because estate planning decisions are made years before they take effect, these changes matter now.

The table below summarises the current status of each measure.

Change	Start date	Status
Division 296 superannuation tax	1 July 2026	Law
Replacement of the 50% CGT discount with indexation	1 July 2027	Law
Pre-CGT assets brought into the CGT system	1 July 2027	Law
30% minimum tax on discretionary trusts	1 July 2028	Announced, not yet law
Foreign resident capital gains withholding at 15%	Already in effect	Law

The 50% CGT Discount Is Being Replaced From 1 July 2027

This is the most significant change to Australian capital gains tax since the discount was introduced in 1999, and it directly affects the calculations described earlier in this article (Department of the Treasury).

For CGT events happening on or after 1 July 2027, the 50% CGT discount available to Australian resident individuals, trusts and partnerships is replaced with cost base indexation, together with a minimum tax rate of 30% on capital gains accruing from that date. The measures were legislated by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026, which received Royal Assent on 26 June 2026 (ATO).

Key points for estates and beneficiaries:

• The changes are prospective. Gains that accrued before 1 July 2027 generally retain their existing treatment, including the 50% discount.
• Assets held at the end of 30 June 2027 are generally treated as having been sold just before 1 July 2027 and reacquired at their market value, or at a value determined under an apportionment method. That value sets the dividing line between the old and new treatment.
• Indexation is not available to foreign or temporary residents.
• Existing CGT settings continue to apply to companies and to superannuation funds, including SMSFs.
• Owners of new residential dwellings and affordable housing may choose between the existing discount and the new framework.
• Recipients of means-tested income support payments, including the Age Pension, are exempt from the minimum tax.

This matters particularly for inherited assets. Because a beneficiary inherits the deceased’s acquisition date, an inherited asset’s holding period frequently spans decades, and a valuation position at 1 July 2027 may be relevant long after that date. Executors and beneficiaries holding long-dated assets should obtain advice on whether contemporaneous valuation evidence should be prepared.

Pre-CGT Assets Enter The CGT System From 1 July 2027

The same legislative package removes the pre-CGT status of assets acquired before 20 September 1985.

As at 1 July 2027, pre-CGT assets are deemed to have been sold and reacquired at market value, or at a value determined under an apportionment method, and cease to be pre-CGT assets. This applies to all entities holding such assets, including companies. Gains that accrued before that date generally continue to be disregarded.

This qualifies the cost base position described earlier in this article. The rule that a beneficiary commonly takes a market value cost base for an asset the deceased acquired before 20 September 1985 continues to apply to deaths occurring before the reset date, but the treatment of pre-CGT assets held through the reset date is different, and ATO transitional guidance in this area is still developing.

Estates holding long-held assets such as farmland, holiday homes or legacy share portfolios should not assume that historical pre-CGT exemptions will continue indefinitely. Records and valuations should be obtained and retained.

Division 296 Superannuation Tax Commenced On 1 July 2026

Division 296, also known as the better targeted superannuation concessions measure, is now law and applies from the 2026–27 financial year.

From 1 July 2026, if your total superannuation balance exceeds the large super balance threshold, set at $3 million for the 2026–27 financial year, you will be subject to Division 296 tax of 15% on the proportion of earnings relating to the balance that exceeds that threshold. If your total superannuation balance exceeds the very large super balance threshold, set at $10 million for the 2026–27 financial year, you will be subject to an additional Division 296 tax of 10% on the proportion of earnings relating to the balance above that threshold (ATO).

Both thresholds are indexed to the consumer price index. The large super balance threshold is indexed in $150,000 increments and the very large super balance threshold in $500,000 increments.

Two points are directly relevant to estate planning:

1. It affects the “withdraw super before death” question discussed above. Division 296 changes the comparison between holding wealth inside superannuation and holding it in other structures. It does not, however, override the conditions of release, aged-care, Centrelink and asset-protection considerations already set out in this article. It is one additional factor, not a reason to act.
2. A liability may still arise in the year of death. Superannuation does not form part of an estate, and the interaction between Division 296 and a member’s death should be considered as part of an estate plan rather than assumed to be neutral. Obtain advice on your specific circumstances.

A Proposed 30% Minimum Tax On Discretionary Trusts From 1 July 2028

On 12 May 2026, as part of the 2026–27 Federal Budget, the Government announced it will introduce a 30% minimum tax on discretionary trusts from 1 July 2028. The minimum tax will apply at the trustee level, and non-corporate beneficiaries who are presently entitled to a share of the net income of the trust will be able to claim a non-refundable income tax credit for the tax paid by the trustee. This measure is not yet law (ATO).

A time-limited restructure rollover has also been proposed alongside the measure.

For estate planning, the important detail is the proposed treatment of testamentary trusts. Following a further announcement on 18 June 2026, income from testamentary trusts is proposed to be exempt from the minimum tax where the trust is established for genuine testamentary purposes and the income is derived from assets originating from the deceased estate. Assets injected into the trust after 7.30pm AEST on 12 May 2026 that are unrelated to the deceased estate are proposed to remain subject to the minimum tax. Deceased estates themselves are proposed to be excluded entities.

If the measure proceeds in its announced form, it would strengthen rather than weaken the case for a properly drafted testamentary trust, while reinforcing the warning made earlier in this article: adding unrelated assets to a testamentary trust can change its tax treatment.

Because the design is still being settled through exposure draft legislation, no structure should be established or unwound on the assumption that the final law will match the announcement.

Executors Selling Property Must Obtain A Clearance Certificate

This change is already in effect and is frequently missed in estate administration.

For contracts signed on or after 1 January 2025, foreign resident capital gains withholding applies at 15% of the sale price to all property sales, with no value threshold. Previously, a rate of 12.5% applied only to property valued at $750,000 or more. Where the vendor does not provide the purchaser with an ATO clearance certificate before settlement, the purchaser must withhold 15% and pay it to the ATO (ATO).

For deceased estates, an ATO legislative instrument varies the withholding amount to nil in defined circumstances, including where a beneficiary of the will acquires the property, regardless of their residency. The instrument extends to circumstances where assets pass to beneficiaries of a testamentary trust.

The practical consequence is that where a legal personal representative sells estate property to a third party, a clearance certificate should be applied for well before settlement. Certificates are free, but processing time should be allowed for (ATO).

What This Means For Estate Planning Now

None of these measures introduces an inheritance tax. Collectively, however, they change several assumptions that Australian estate plans have relied on for years.

Practical steps to consider:

• Review whether existing valuations and cost base records are adequate, particularly for long-held and pre-1985 assets
• Revisit any strategy built around the 50% CGT discount, including planned timing of asset sales by an estate or beneficiary
• Reconsider the balance between superannuation and other structures where a total superannuation balance is near or above $3 million
• Review family trust and testamentary trust arrangements once the trust measure is settled, and avoid adding unrelated assets to a testamentary trust
• Confirm clearance certificate requirements before any estate property is listed for sale

Because two of these measures do not commence until 1 July 2027 and 1 July 2028, and one is not yet law, decisions should be made on the basis of current circumstances and reviewed as the legislation and ATO guidance develop.

Final Thoughts

Australia has no standalone inheritance tax, and none of the reforms currently before Parliament or already legislated introduces one. That does not make every estate tax-free.

CGT may arise when inherited assets are sold. Superannuation death benefits may be taxed when paid to a non-tax dependant. Income earned during estate administration or by beneficiaries after distribution may also be taxable. The outcome in each case depends on the assets, their history, the beneficiaries and the estate’s legal structure.

What has changed is the stability of the settings around those three taxes. Division 296 commenced on 1 July 2026. The replacement of the 50% CGT discount with cost base indexation, and the removal of pre-CGT status, take effect from 1 July 2027. A minimum tax on discretionary trusts has been announced for 1 July 2028 but is not yet law. Estate plans built on the previous settings should be reviewed rather than assumed to still be fit for purpose.

Two practical points follow. First, records and valuations matter more than they did. Cost base documentation, historical purchase evidence and contemporaneous valuations will carry more weight under the new CGT framework, and they are far harder to reconstruct after someone has died. Second, timing is not neutral. Measures with future start dates create planning windows, but they also create a risk of acting prematurely on rules that are not yet settled.

Reviewing these issues while there is still time to act can improve certainty, prevent avoidable tax and ensure assets pass in a way that supports the family’s wider financial objectives. Given how much is currently in transition, that review is best conducted with coordinated financial, tax and legal advice.

Frequently Asked Questions (FAQ)

Important Disclaimer: The information provided in this article is general in nature and does not constitute financial advice. Please consult with a qualified financial advisor to discuss your individual circumstances before making any decisions.

References:

ATO – Inherited assets and capital gains tax
ATO – Inherited property and CGT
ATO – Superannuation death benefits
Services Australia – Gifting
ATO – Doing trust tax returns for the deceased estate
ASIC Moneysmart – Claiming a super death benefit
ATO – Foreign and worldwide income
ATO – When a FITO applies
ATO – Tax reform – Boosting home ownership – Reforming negative gearing and capital gains tax
Department of the Treasury – Budget 2026-27 Tax Reform
ATO – Cost base of inherited assets
ATO – Deceased estates
ATO – Better targeted superannuation concessions
ATO – Tax reform – introducing a minimum tax on discretionary trusts
ATO – Foreign resident capital gains withholding overview
ATO – Australian residents and clearance certificates