Is There Inheritance Tax in Australia in 2025?
Australia has no inheritance or estate taxes since 1979. However, tax implications still exist for inherited assets: capital gains tax may apply when selling inherited assets, and income tax applies to any dividends, interest, or rental income generated from inherited shares or property.
A Quick History – When and Why It Was Abolished
Australia’s journey with inheritance tax has a fascinating history. Until 1979, Australia had various forms of death duties and estate taxes at both federal and state levels. The abolition began when Queensland made the bold move to eliminate its state-level inheritance taxes in 1977, triggering a domino effect across other states. By 1979, all Australian jurisdictions had abolished inheritance taxes due to growing public sentiment against “death taxes” and concerns about their impact on family businesses and farms.
While inheritance taxes were abolished, the conversation around wealth distribution has continued in Australia. The 2010 Henry Tax Review, for instance, raised concerns about economic inequality and suggested that reintroducing an inheritance tax could address this issue. However, due to significant public resistance, this remains an unlikely change in Australia’s tax policy.
Current Scenario
Australia has not had an inheritance tax since 1979 – but there are still tax implications to consider when receiving an inheritance. Unlike countries such as the United Kingdom or the United States, the Australian government does not impose direct taxes on estates or inheritances. However, this doesn’t mean inheriting assets in Australia is completely tax-free.
Historical Timeline:
- Pre-1977: Death duties existed at both federal and state levels
- 1977: Queensland eliminated state-level inheritance taxes
- 1979: All Australian jurisdictions abolished inheritance taxes
- Present: No direct inheritance or estate taxes exist
Superannuation and Inheritance Tax
If you inherit superannuation, the tax treatment will depend on whether the beneficiary is a dependent or non-dependent. When a surviving spouse inherits super, no tax is applicable. However, non-dependants, such as children over 18, may be subject to tax on the taxable component of the super, typically at 15% plus the Medicare levy. This can be a significant cost, so it’s crucial to consult with a financial planner for tailored advice.
Do You Have to Pay Tax on Inheritance in Australia?
Yes — if inherited assets earn income or increase in value after you receive them. While the initial inheritance itself isn’t taxed, any income generated from inherited assets (such as rental income from property or dividends from shares) becomes part of your taxable income. Additionally, when you eventually sell inherited assets, you may be liable for capital gains tax (CGT) on any increase in value since the original owner acquired them.
Capital Gains Tax on Inherited Property
When Capital Gains Tax (CGT) Applies
Capital Gains Tax is not payable at the time you inherit assets. Instead, it becomes relevant only when you decide to sell or dispose of those inherited assets. The most common examples include:
- Selling an inherited property that wasn’t the deceased’s main residence
- Disposing of inherited shares or managed investments
- Selling valuable collectibles or personal items worth more than $500
Learn More: Full Guide on Gift Tax in Australia for 2025
The Family Home and CGT
The family home (principal place of residence) often receives special treatment under CGT rules, potentially providing full or partial exemptions depending on specific circumstances.
Superannuation can be directed to sit outside of the estate but should always be considered as part of a complete estate plan. Or something like that as it does not necessarily form part of the estate and additionally can have extra tax applicable on the underlying components.
*If you are a foreign resident for tax purposes at the time of inheriting you should seek independent advice as CGT may be payable on the date of death not on the date of eventual sale of the asset. This is important to note for estate planning when beneficiaries may be overseas.
How to Calculate CGT
Calculating CGT on inherited assets involves understanding the “cost base” — essentially what the asset is deemed to have cost you. For inherited assets, the cost base is generally determined by:
- If acquired by the deceased before 20 September 1985: the market value at the date of death
- If acquired by the deceased on or after 20 September 1985: the deceased’s original cost base
As per ATO guidelines on Inherited property and CGT, for example, if you inherit a property that was purchased for $200,000 in 2000 and worth $500,000 at the time of inheritance, your cost base would be $200,000. If you sell it for $700,000, your capital gain would be $500,000 ($700,000 – $200,000). If you hold the property for more than 12 months, you may be eligible for the 50% CGT discount, reducing your taxable gain by half.
ATO’s Deferral Rule
The Australian Taxation Office (ATO) has implemented a practical approach to CGT on inherited assets through what’s effectively a deferral rule. This means the tax liability isn’t triggered until you actually dispose of the asset, which prevents beneficiaries from facing immediate tax bills they might not be able to afford.
This deferral can provide valuable breathing room for estate planning and decision-making, allowing beneficiaries to choose the most financially advantageous time to sell inherited assets.
Superannuation Nominations and Tax Implications
Superannuation beneficiary nominations determine how your benefits may be paid subject to trustee discretion. Therefore, it is always important you review these nominations to ensure they are a valid nomination, and they reflect your wishes. It is important to note superannuation may have additional tax considerations or concessions applicable and should be considered as part of a complete estate plan with your financial adviser.
Death Benefit Nominations
A clear and updated death benefit nomination for your super is critical to ensure that your superannuation is passed on to your intended beneficiaries. If you haven’t nominated a beneficiary, the superannuation fund will determine how it is distributed, which may not align with your wishes.
Income Tax from Inherited Assets
Ongoing Income Sources
Once you inherit income-producing assets, you become responsible for declaring and paying tax on any income they generate. Common examples include:
- Rental income from investment properties
- Dividends from shares or managed funds
- Interest earned from inherited cash or term deposits
- Trust distributions if you inherit a beneficiary position in a trust
Each of these income streams must be reported on your annual tax return from the date the assets legally become yours.
How It’s Assessed
This income is treated as your regular income and will be taxed at your marginal tax rate. For example, if you inherit shares that pay $5,000 in annual dividends, that amount will be added to your income, and you’ll pay tax on it accordingly.
It’s worth noting that the timing of when income becomes assessable can sometimes be complex, particularly during the administration of estates. Working with both the executor and a tax professional can help ensure you meet all obligations correctly.
Foreign Inheritance and International Tax Rules
Tax on Inheritance from Overseas
If you inherit assets from someone who resided in a country that does impose inheritance or estate taxes, you may face tax liabilities in that jurisdiction. Many countries, including the United States, United Kingdom, and numerous European nations, maintain some form of inheritance or estate tax.
For example, if you inherit assets from a relative in the UK, you might be subject to UK Inheritance Tax, which can be as high as 40% on estates valued above certain thresholds.
How Australia Handles It
While Australia won’t impose additional inheritance taxes on overseas assets you inherit, you’ll still need to:
- Report any foreign income generated by those assets on your Australian tax return
- Consider the implications of any applicable Double Taxation Agreements (DTAs) Australia has with the country in question
- Be aware that foreign tax credits may apply for taxes already paid overseas
Australia has DTAs with many countries, including the United States, which can prevent the same income from being taxed twice. Navigating these international tax implications often requires specialized advice from tax professionals with expertise in international tax structuring.
Legal Framework for Inheritance in Australia
Federal vs. State Laws
While tax legislation in Australia is primarily federal, inheritance and estate matters are largely governed by state and territory laws. This creates a patchwork of regulations that can vary depending on where the deceased lived and where their assets are located.
State-Specific Probate and Intestacy Laws
The probate process and rules about intestacy (dying without a will) can vary greatly from state to state. For instance, New South Wales and Victoria have different procedures and rules, making it essential for executors and beneficiaries to be aware of the specific laws in their state.
Understanding these jurisdictional differences is crucial for executors and beneficiaries alike, particularly for estates with assets in multiple states or territories.
Estate Planning Considerations
Effective estate planning can significantly reduce potential tax liabilities and complications for your beneficiaries. Key strategies include:
- Creating a clear, legally valid will that reflects your current wishes
- Considering the tax implications of how assets are structured and transferred
- Understanding the potential benefits of testamentary trusts for certain beneficiaries
- Reviewing superannuation beneficiary nominations regularly
- Exploring whether a corporate trustee structure might benefit your estate plan
Engaging with professional tax advisors and estate planning experts at firms like The Gild Group can help ensure your estate is structured optimally for your beneficiaries’ circumstances.
Practical Example – What You Might Owe
Investment Property Case Study
Let’s consider a practical example to illustrate potential tax implications:
Scenario: You inherit an investment property that your father purchased in 2005 for $400,000. At the time of his death in 2024, the property was valued at $800,000. You decide to hold onto it for five years, collecting rental income, before selling it in 2029 for $950,000.
Capital Gains Tax Calculation
| Item | Amount | Explanation |
|---|---|---|
| Original purchase price (2005) | $400,000 | Your cost base for CGT purposes |
| Sale price (2029) | $950,000 | What you sell the property for |
| Total capital gain | $550,000 | Sale price minus cost base |
| 50% CGT discount | $275,000 | Discount for holding asset >12 months |
| Taxable capital gain | $275,000 | Amount added to your taxable income |
Annual Income Tax While Owning the Property
| Item | Annual Amount | Explanation |
|---|---|---|
| Gross rental income | $32,000 | Approximate annual rent received |
| Deductible expenses | $12,000 | Property management, rates, maintenance, etc. |
| Net rental income | $20,000 | Amount added to your annual taxable income |
| Tax payable | Varies | Based on your marginal tax rate |
This example demonstrates how both ongoing income tax and eventual CGT can significantly impact the financial outcome of an inheritance. Strategic timing and professional advice could potentially reduce these tax implications substantially.
Strategies to Reduce Tax Liability
Smart Timing of Asset Sales
Strategic timing of when you dispose of inherited assets can make a significant difference to your tax position:
- Consider spreading asset sales across multiple financial years to avoid pushing yourself into higher tax brackets
- If your income varies year to year, selling in a lower-income year could reduce your overall tax rate
- Holding assets for at least 12 months to qualify for the 50% CGT discount
- Consider your overall financial situation, including potential retirement plans or career changes that might affect your tax position
These timing considerations can be particularly important for high-value inheritances where tax implications could be substantial.
Use of Superannuation and Trusts
Sophisticated estate planning might include:
- Directing certain assets through superannuation, which can offer tax advantages for beneficiaries
- Establishing testamentary trusts, which allow for income splitting and potential tax savings, especially for beneficiaries with children
- Family trusts that can provide flexibility in how and when assets are distributed
These structures require careful planning but can provide significant tax benefits when used appropriately. The choice between individual and corporate trustees can also impact long-term outcomes for beneficiaries.
Get Financial Advice
Professional advice is invaluable when dealing with inheritance tax matters. Consider consulting:
- A tax accountant with expertise in estate matters
- A financial planner who can help integrate inherited assets into your broader financial strategy
- A legal professional specializing in estate law
The cost of professional advice is often small compared to the potential tax savings and peace of mind it can provide. For complex estates or substantial assets, working with a multidisciplinary firm like The Gild Group can provide comprehensive support across all relevant areas. Contact Us
Frequently Asked Questions (FAQs)
1. Do you pay tax on inheritance in Australia?
No direct inheritance tax exists, but you may pay income tax on earnings from inherited assets and capital gains tax when you eventually sell them.
2. What happens if I inherit property from overseas?
You might owe inheritance tax in that country, and any income from the property must be declared on your Australian tax return, subject to double taxation agreements.
3. How is capital gains tax calculated on inherited property?
CGT is calculated based on the difference between the sale price and the deceased’s original purchase cost, with potential discounts applying if you hold the property for over 12 months.
4. How to avoid death tax on superannuation?
There is no death tax on superannuation in Australia. However, super death benefits may be taxed depending on the beneficiary. To reduce tax, ensure you have a valid binding beneficiary nomination, especially for spouses or dependents.
5. When was death tax abolished in Australia?
Death tax was abolished in Australia in 1979 after being removed across all states and territories due to public opposition and its impact on family businesses.
6. Can a beneficiary be an executor of a will in Australia?
Yes, a beneficiary can be the executor of a will in Australia, provided they are appointed by the deceased in the will.
A Note on Superannuation
Superannuation beneficiary nominations determine how your benefits may be paid subject to trustee discretion. Therefore, it is always important you review these nominations to ensure they are a valid nomination, and they reflect your wishes. It is important to note superannuation may have additional tax considerations or concessions applicable and should be considered as part of a complete estate plan with your financial adviser.