“Do you pay tax on inheritance?” deserves a straight answer, so here it is: Australia has no inheritance tax, no estate tax and no death duties — the last of them were abolished by 1979. Money or assets left to you in a will are not taxed simply because you received them. But anyone who stops reading there is in for surprises, because the tax system has several less obvious ways of taking a share: capital gains tax (CGT) when inherited assets are sold, a hefty tax on superannuation death benefits paid to adult children, income tax on what inherited assets earn, and traps around foreign inheritances. Families who understand these rules routinely keep tens of thousands of dollars more of an estate than families who do not.

This guide from Trinity Accounting Practice explains where the real tax exposure sits in an Australian inheritance, what the key deadlines are, and where a small amount of planning — by the will-maker or the beneficiaries — makes the biggest difference.

No inheritance tax — but the clock starts ticking on CGT

Receiving an inherited asset is not a CGT event — death itself generally does not trigger CGT, and assets passing to a beneficiary or the executor roll over without tax. The tax question is deferred until the asset is later sold, and the answer depends on the cost base you inherit with it:

Assets the deceased acquired before 20 September 1985 (pre-CGT): you are taken to acquire the asset at its market value on the date of death. All growth during the deceased’s lifetime is wiped clean for tax purposes.
Assets acquired on or after 20 September 1985 (post-CGT): you inherit the deceased’s original cost base. Sell the asset and you pay CGT on the full gain since the deceased bought it — which can stretch back decades.

One helpful quirk: for the 50% CGT discount, you are generally treated as having held the asset from when the deceased acquired it (post-CGT assets), so the 12-month holding test is usually already satisfied. The ATO’s guidance on inherited assets and CGT covers the detail. Executors should obtain a date-of-death valuation for every significant asset — it is the foundation of every later calculation.

The inherited family home — the 2-year rule

The deceased’s main residence gets special treatment. If the home was the deceased’s main residence just before death (and not being used to produce income), or was a pre-CGT asset, a sale by the estate or beneficiaries that settles within 2 years of the date of death is generally fully exempt from CGT — even if the property was rented out during those two years. Miss the window and a partial CGT calculation applies. The ATO can grant extensions in limited circumstances, such as a contested will, but the safest plan treats the 2 years as a hard deadline. The exemption can also continue indefinitely while the deceased’s spouse or another eligible person occupies the home. The broader rules are covered in our main residence exemption guide.

Superannuation — the closest thing Australia has to a death tax

Superannuation does not automatically form part of the estate, and it carries its own tax rules. Who receives the death benefit determines the tax:

Death benefit dependants — a spouse or de facto, children under 18, financial dependants, or someone in an interdependency relationship — generally receive lump sum death benefits tax-free.
Non-dependants — most commonly self-sufficient adult children — pay tax on the taxable component: generally 15% plus the 2% Medicare levy (17%) on the taxed element, and 30% plus Medicare (32%) on any untaxed element. The tax-free component remains tax-free.

On a $800,000 super balance that is mostly taxable component, an adult child can lose well over $130,000 to this tax — on an “inheritance” most families assumed was tax-free. Planning options exist: paying the benefit through the estate can avoid the Medicare levy component, and recontribution strategies during the member’s lifetime may convert taxable component to tax-free. These are strategies to consider with advice, well before they are needed.

Income from inherited assets is just income

The inheritance itself is tax-free; what it earns is not. Rent from an inherited investment property, dividends from inherited shares, interest on inherited cash — all assessable income in your hands from the date the asset becomes yours, at your marginal rate. During the administration period, income may instead be taxed to the estate. For beneficiaries already on high incomes, a large inheritance can push investment earnings into the 47% bracket — one of the strongest arguments for testamentary trusts, below.

Foreign inheritances — the section 99B trap

Inheriting from overseas adds a layer most people never see coming. A straightforward bequest from a foreign deceased estate is generally not taxable in Australia. But where the money comes to you via a foreign trust — common in estates administered through trust structures overseas, or where funds sat in an estate accumulating for years — section 99B of the tax law can tax distributions of accumulated income or gains at your marginal rate, sometimes with an interest charge. The ATO has actively focused on s99B in recent years, and the line between “corpus of the estate” (not taxable) and “accumulated income” (taxable) depends on records that may be in another country and another language. Large transfers from overseas are also reported through AUSTRAC, so the ATO generally knows the money arrived. If you are expecting a foreign inheritance, get advice before the funds move.

Testamentary trusts — the structure that changes the family’s tax outcome

A testamentary trust (a trust created by a will) does not avoid any of the taxes above — but it can dramatically improve how inherited wealth is taxed year after year. Income distributed from a testamentary trust to minor children is taxed at ordinary adult rates rather than penalty minor rates, which means a family with young children can distribute meaningful income to them at low or nil tax. Combined with asset protection and flexibility benefits, this is why we often raise testamentary trusts in estate planning conversations — covered in detail in Trinity’s guide to testamentary trust wills.

Worked example — same estate, three different tax outcomes

Nabil, a widowed Beverly Hills retiree, dies in July 2025 leaving his adult daughter Rita: the family home (bought 1982, worth $1.7 million at death), a parcel of bank shares (bought 1998 for $40,000, worth $190,000), and $600,000 of super, of which $500,000 is taxable component (taxed element).

The home: pre-CGT asset and Nabil’s main residence. Rita sells it for $1.75 million, settling 14 months after death — within the 2-year window. CGT payable: nil.
The shares: post-CGT, so Rita inherits the $40,000 cost base. She sells at $190,000 — a $150,000 gain, reduced to $75,000 by the 50% discount. At her 39% marginal rate (including Medicare), tax of roughly $29,250. Had she sold over two financial years, or in a lower-income year, the bill could have been smaller.
The super: Rita is a non-dependant. Tax of 15% plus Medicare on the $500,000 taxable component: roughly $85,000. Had Nabil withdrawn and recontributed strategically in his later years, or had the benefit been directed through the estate, much of that could potentially have been reduced.

Total tax on a “tax-free” inheritance: around $114,000 — almost all of it attached to decisions that could have been planned.

A Trinity insight from 22 years in practice

After 22 years of sitting with families in the months after a death, our observation is this: the inheritance tax bill in Australia is mostly a timing bill. The 2-year window on the home, the financial year in which inherited shares are sold, whether super was restructured before retirement, whether the will created a testamentary trust — every one of these is a date or a decision, not a rate. The families who pay the least tax are not the ones with clever structures; they are the ones where someone — usually the parent, sometimes the executor — asked the questions a few years early. The most valuable estate planning meeting is the one that happens while everyone is still healthy.

What this means for you

If you have recently inherited a home: diarise the 2-year deadline from the date of death — settlement, not exchange, inside the window.
If you have inherited shares or property: get the deceased’s cost base records and a date-of-death valuation before you sell anything.
If your super will pass to adult children: the taxable component may be taxed at 17% — ask about recontribution and estate-direction strategies while options remain open.
If you are expecting an inheritance from overseas: have the s99B position reviewed before the funds are transferred, not after.
If you are an executor: obtain valuations of every significant asset at the date of death — beneficiaries will need them for years.
If you are making or updating your will: ask whether a testamentary trust suits your family — the annual tax difference can be substantial.

How Trinity can help

Trinity Accounting Practice works with executors and beneficiaries on the tax side of deceased estates: date-of-death valuations and cost base reconstruction, the 2-year main residence window, estate tax returns, CGT planning on inherited assets, super death benefit tax, and s99B reviews for foreign inheritances. For will-makers, we work alongside your solicitor on the tax structure of the estate plan — including testamentary trusts and super strategies — so the next generation inherits the asset, not the avoidable tax bill.

Talk to Trinity about an inheritance or estate plan →

General advice only. This article contains general information current as at June 2026 and does not constitute tax, financial or legal advice. It does not take into account your personal circumstances, objectives or needs. Before acting on any information in this article, you should consider its appropriateness to your situation and seek professional advice from Trinity Accounting Practice or another qualified adviser. Liability limited by a scheme approved under Professional Standards Legislation.