Inheritance Tax in Australia: Does It Exist? Complete Guide for 2025–26

What Is Inheritance Tax?

An inheritance tax is a tax imposed on the value of money, property, or assets that a person receives from a deceased individual’s estate. Countries like the United Kingdom, Japan, and the United States all have some form of inheritance tax or estate duty. The UK, for example, charges 40% on estates valued at above £325,000.

This means that when someone passes away and leaves money, property, shares, or other assets to their beneficiaries, no tax is charged on the inheritance of those assets. There is no threshold, no tax rate, and no form to fill out specifically for inheriting wealth.

However, and this is the critical point that many Australians miss, the absence of a formal inheritance tax does not mean inherited assets are entirely tax-free. Several forms of taxation can apply to the management, sale, or distribution of inherited assets. These are sometimes referred to as Australia’s “hidden” or “stealth” inheritance taxes.

How Inherited Assets Are Actually Taxed in Australia

Even without a formal inheritance tax, three main tax obligations can arise when you inherit assets in Australia:

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  Capital Gains Tax (CGT) when you sell inherited property, shares, or other CGT assets
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  Superannuation death benefits tax when super is paid to non-dependent beneficiaries (up to 17% or 32%)
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  Income tax on any ongoing income generated by inherited assets (rent, dividends, interest)

For employees, this means a significant reduction in the effective cost of driving an EV through salary packaging arrangements.
For employers, it creates a tax-efficient way to offer additional benefits as part of compensation packages.

Capital Gains Tax on Inherited Assets

Capital Gains Tax is the primary way Australians incur tax liabilities from inherited assets. The Australian Taxation Office (ATO) confirms that no CGT is triggered at the point of inheritance; the tax event occurs only when the beneficiary eventually sells or disposes of the asset.

How CGT Is Calculated on Inherited Property

Pre-CGT assets (acquired before 20 September 1985): The beneficiary’s cost base is the market value of the property at the date of the deceased’s death. Any capital gain is calculated as the difference between the eventual sale price and the market value at the date of death.

Post-CGT assets (acquired on or after 20 September 1985): The beneficiary inherits the deceased’s original cost base, including purchase price plus eligible costs such as legal fees, stamp duty, and capital improvements. The gain could span decades of property appreciation.

CGT Example: Inherited Investment Property

Sarah’s mother purchased an investment property in 2005 for $350,000 and passed away in 2025 when the property was valued at $850,000. Sarah inherits the property and sells it in 2027 for $920,000.

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  Cost base (inherited from mother): $350,000
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  Sale price: $920,000
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  Capital gain: $570,000
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  50% CGT discount (held for more than 12 months): $285,000 taxable
• 
  Tax payable (at Sarah’s marginal rate of 37%): approximately $105,450

Main Residence Exemption for Inherited Property

Full CGT Exemption

You may be entitled to a full CGT exemption if all the following conditions are met:

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  The property was the deceased’s main residence throughout their period of ownership.
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  The property was not used to produce income (such as rental income) during the deceased’s ownership.
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  You sell the property within 2 years of the deceased’s death.

During the 2-year window, it does not matter whether the beneficiary lived in the property or rented it out; the exemption still applies.

The 2-Year Rule Explained

Superannuation Death Benefits Tax: Australia’s “Hidden” Inheritance Tax

Superannuation is often the largest single asset in an Australian’s estate, yet it sits outside the estate and is governed by separate rules. The tax treatment depends entirely on who receives the benefit and how it is paid.

Tax-Dependent vs Non-Dependent Beneficiaries

Tax-dependent beneficiaries: The deceased’s spouse or former spouse, children under 18, anyone in an interdependency relationship with the deceased, and anyone who was financially dependent on the deceased at the time of death.

Non-dependent beneficiaries: Adult children (over 18) who were not financially dependent, parents, siblings, grandchildren, and other relatives.

Super Death Benefits Tax Rates

Super Death Benefits Example

David, aged 72, passes away. His super balance is $800,000, comprising a $200,000 tax-free component and a $600,000 taxable component (taxed element). His super is paid directly to his 45-year-old daughter, Emma (non-dependent).

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  Tax-free component ($200,000): No tax
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  Taxable component ($600,000): 17% = $102,000 tax
• 
  Emma receives: $698,000 out of $800,000

If David had directed super to his estate instead, the Medicare levy would not apply: $600,000 × 15% = $90,000, saving $12,000.

How Much Is Inheritance Tax in Australia? Complete Tax Summary

Division 296: The New Super Tax (From 1 July 2026)

Division 296 was passed by Parliament on 10 March 2026 and takes effect from 1 July 2026. It introduces an additional tax on super earnings for individuals with balances exceeding $3 million.

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  Balances between $3 million and $10 million: realised earnings taxed at an additional 15% (total 30%)
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  Balances above $10 million: realised earnings taxed at an additional 25% (total 40%)
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  Applies to realised earnings only (dividends, interest, rent, realised capital gains), not unrealised gains
• 
  Both thresholds will be indexed in future years

Division 296 does not create a new death tax, but it changes the economics of holding large super balances. If a member dies with a balance above $3 million, a Division 296 assessment may be raised on the estate for earnings from 1 July to the date of death.

How to Avoid or Minimise Tax on Inherited Assets

1. Sell the Family Home Within 2 Years

If you inherit a property that was the deceased’s main residence, selling within 2 years of death generally provides a full CGT exemption. Delaying beyond this window could expose you to CGT on the entire gain since the deceased’s original purchase.

2. Use the Withdrawal-and-Recontribution Strategy for Super

If the parent is aged 60+ and has met a condition of release (such as retirement):

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  Withdraw a lump sum from super (tax-free for those 60+ in a taxed fund).
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  Recontribute the same amount as a non-concessional (after-tax) contribution.
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  The recontributed funds become a tax-free component, meaning no tax on death.

The non-concessional contributions cap for 2025–26 is $120,000 per year, or $360,000 using the bring-forward rule for those under 75. Repeat annually to gradually convert taxable income to tax-free income.

3. Establish a Testamentary Trust

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  Income distributed to minor beneficiaries is taxed at adult marginal rates, not penalty rates.
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  Asset protection from creditors, bankruptcy, and relationship breakdowns.
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  Flexibility in distributing income among beneficiaries to minimise overall family tax.

4. Direct Super to Tax-Dependent Beneficiaries First

Direct the taxable component of super to tax-dependent beneficiaries (such as a spouse) and direct tax-free assets (property, cash) to non-dependent beneficiaries (adult children).

5. Keep Your Binding Death Benefit Nomination Up to Date

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  Ensure your BDBN is current and has not expired (many expire after 3 years).
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  Align your BDBN with your will and broader estate plan.
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  Reflect current family circumstances.

6. Pay Super Through the Estate for Non-Dependants

When super is paid directly to a non-dependent, the Medicare levy of 2% applies on top. If paid to the estate and distributed through the will, the Medicare levy does not apply, saving 2% on the entire taxable component.

7. Obtain Professional Valuations at Date of Death

For inherited property and shares, a professional market valuation at the date of death establishes the cost base and may reduce CGT when the asset is eventually sold.

A Brief History of Death Duties in Australia

How The Kalculators Can Help

Navigating the tax implications of inherited assets requires careful planning and professional guidance.

At The Kalculators, our experienced tax professionals can:

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  Assess your estate or inheritance situation and identify all potential tax liabilities
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  Advise on the most tax-effective structure for distributing super death benefits
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  Help determine whether the main residence exemption or 2-year rule applies
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  Coordinate with financial planners and solicitors on testamentary trust structures
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  Prepare and lodge tax returns for deceased estates and beneficiaries

Contact us at (08) 7480 2593 or book an appointment to discuss your specific circumstances.