Australia has no inheritance tax or death duties, so simply inheriting an asset does not trigger a tax bill. But capital gains tax (CGT) can still apply later — when you eventually sell the inherited asset. What matters is the cost base you inherit, whether the asset was bought before or after CGT began, and, for a home, whether you sell within a special two-year window. Getting these rules right can be the difference between a large CGT bill and none at all.
This guide sits under our pillar, capital gains tax in Australia. It also connects to Cockatoo’s estate content — see inheritance in Australia and estate planning in Australia for the broader picture.
Death itself is usually not a CGT event
When someone dies, passing their assets to their beneficiaries (or to their estate) generally does not trigger CGT at that moment. Instead, any potential gain is effectively rolled over — it is deferred until the beneficiary later disposes of the asset. This is why there is no immediate tax when you inherit shares or property.
The catch is that you also inherit a cost base, and that inherited cost base determines the gain when you eventually sell.
The cost base you inherit
The cost base rules depend on when the deceased acquired the asset and, for property, how it was used.
| Situation | Cost base the beneficiary inherits |
|---|---|
| Asset acquired by the deceased on or after 20 Sep 1985 (post-CGT) | Generally the deceased’s original cost base |
| Asset acquired by the deceased before 20 Sep 1985 (pre-CGT) | Generally the market value at the date of death |
| A dwelling that was the deceased’s main residence and not producing income at death | Generally the market value at the date of death |
So if you inherit shares your parent bought in 2005, you take on their cost base, and your gain on sale is measured from that original price. If you inherit shares bought before September 1985, or a home that was their main residence, you generally get a market-value cost base at the date of death — which usually means a much smaller taxable gain if you sell soon after.
It is worth getting a date-of-death valuation for inherited property and keeping records of the deceased’s original purchase details, because you may need either figure depending on the asset.
Inherited shares
Inherited shares work the same way. For post-1985 holdings you inherit the deceased’s cost base and their acquisition date, which means:
- The 12-month holding period carries over, so gains often qualify for the 50% discount immediately.
- Your gain is measured from what the deceased originally paid.
If you plan to sell inherited shares, our CGT on shares guide covers parcel selection and brokerage, and the CGT discount explains the 50% concession that usually applies.
The two-year main residence rule
There is a valuable concession for an inherited home. If the property was the deceased’s main residence (and not being used to produce income) just before they died, the beneficiary or estate can generally sell it fully CGT-free if the sale settles within two years of the date of death.
Key points:
- The two years runs from the date of death to settlement of the sale.
- The Commissioner can extend the two years in some circumstances (for example, a contested will or delays in obtaining probate) — check the current safe-harbour conditions at ato.gov.au.
- If you sell after two years without an extension, a partial gain may apply, generally measured from the market value at the date of death.
- If a beneficiary moves into the inherited home and makes it their own main residence, further exemption may apply.
This rule is why executors often aim to sell an inherited family home within two years — it can keep the entire gain tax-free.
Worked example
Maria inherits her late father’s home, which was his main residence and worth $700,000 at his date of death. She sells it 14 months later for $740,000.
Because the property was his main residence and she sold within two years, the gain is fully exempt — no CGT payable, regardless of the $40,000 increase.
Now suppose instead she rents it out and sells it four years after his death for $820,000, with no extension granted. The two-year exemption no longer covers the whole period. Her cost base is generally the $700,000 market value at death, so a gain of roughly $120,000 arises, apportioned for the non-exempt period and then eligible for the 50% discount.
Deceased estates and the executor
While an estate is being administered, the legal personal representative (executor) may deal with assets. CGT rules broadly mirror those above — assets pass with a rolled-over cost base, and the two-year rule applies to a main residence sold by the estate. Executors should keep the deceased’s purchase records and obtain date-of-death valuations early, as these underpin every later CGT calculation. For the wider process of administering an estate and passing on assets, see estate planning in Australia and inheritance in Australia.
Assets that pass outside the estate
Not everything passes through a will. Superannuation death benefits, for instance, are dealt with under super law and binding nominations rather than the CGT rules above, and they can carry their own tax depending on who receives them and whether they were dependants. Similarly, jointly owned property held as “joint tenants” passes automatically to the surviving owner by survivorship. For a fuller picture of how different assets pass on — and how to plan for it — see payable on death (POD) in Australia and A-B trusts in estate planning.
Foreign residents and inherited assets
If a beneficiary is a foreign resident for tax purposes, the CGT position can differ — the main residence exemption has been restricted for foreign residents, and the two-year concession may not apply in the same way. If you inherit Australian property while living overseas, or you are an executor dealing with an overseas beneficiary, check the current foreign-resident rules at ato.gov.au before selling, as the outcome can be materially different from that of a resident beneficiary.
Common pitfalls
- Assuming there is a “death tax” — there isn’t, but CGT can apply when you later sell.
- Missing the two-year window on an inherited main residence.
- Not obtaining a date-of-death valuation, which you may need for the cost base.
- Losing the deceased’s original purchase records for post-1985 assets.
- Forgetting the holding period carries over, so the 50% discount often applies straight away.
Because inherited assets sit at the intersection of tax and estate planning, it is worth reading this alongside CGT on investment property if the asset is real estate.
This article is general information only and not financial or tax advice; consider your own circumstances and speak to a licensed adviser or the ATO before acting.