Inheritance Tax in Australia – What Actually Gets Taxed When Someone Dies
When people hear the phrase inheritance tax in Australia, many assume it doesn’t exist at all — and that an inheritance is simply “tax-free money.”
That’s partly true, and partly very wrong.
Australia does not have a formal inheritance tax or estate duty. Those were abolished across the country between the late 1970s and early 1980s.
However, the ATO still applies a series of other taxes the moment an estate begins distributing assets. “No inheritance tax” does not mean “no tax.”
No Inheritance Tax in Australia – So What Does Get Taxed?
Four major tax areas still apply when someone dies:
• Capital Gains Tax (CGT)
• Superannuation death benefits tax
• Income tax on inherited assets
• Stamp duty and transactional costs
Each one can significantly change what beneficiaries actually receive.
1. Capital Gains Tax (CGT) and Deceased Estates
There is no CGT triggered simply because someone dies.
However, assets do not refresh their cost base. They carry their tax history into the estate or beneficiary’s hands.
Official ATO guidance:
Capital gains tax for deceased estates
https://www.ato.gov.au/forms-and-instructions/capital-gains-tax-guide-2022/part-a-about-capital-gains-tax/deceased-estates
Main Residence Rules
The deceased’s main residence can generally be sold CGT-free if:
• It was genuinely their main residence
• It wasn’t substantially used to generate income
• It’s sold within two years of death (extensions available)
Failing these conditions can lead to a partial or full taxable gain.
Other Assets
Shares, investment properties, crypto, and business assets all pass to beneficiaries with the original cost base.
There is no inheritance tax — but there may be a substantial unrealised capital gain waiting to be taxed when the asset is sold later.
2. Superannuation Death Benefits
Superannuation is where most families get the biggest shock.
Official ATO guidance:
Superannuation death benefits
https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/apra-regulated-funds/paying-benefits/paying-superannuation-death-benefits
Super benefits do not automatically pass tax-free.
The outcome depends on:
• Who receives the benefit
• How it’s paid (lump sum or pension)
• The taxable and tax-free components inside the fund
Tax Dependants vs Non-Tax Dependants
For tax purposes, a “death benefits dependant” includes:
• spouse or de facto partner
• child under 18
• someone financially dependent
• someone in an interdependency relationship
If a tax dependant receives the lump sum, it is generally tax-free.
If a non-dependant (usually an adult child) receives the taxable component, it can be taxed up to 15% plus Medicare levy.
This is the inheritance tax people don’t realise exists until it’s too late.
3. Income Tax on Inherited Assets
While the inheritance itself isn’t taxed, the income it produces is.
Examples:
• Rental income from an inherited property
• Dividends from inherited shares
• Income generated by the estate before distribution
Executors may need to lodge estate tax returns while the estate is being administered.
More information:
Estate income tax returns
https://www.ato.gov.au/individuals-and-families/deceased-estates/doing-trust-tax-returns-for-the-deceased-estate/when-and-how-to-lodge-returns-for-a-deceased-estate
4. Stamp Duty and Other Transactional Costs
There is no inheritance tax, but stamp duty is very real.
Property transferred directly under a will may be exempt or concessional.
However, transfers after the estate is settled — for example, when siblings buy each other out — are generally subject to full stamp duty at market value.
This isn’t inheritance tax, but it can significantly reduce what beneficiaries actually receive.
Why Australia Removed Inheritance Tax — And Why It Might Return
Australia once had estate duties and gift duties. They were abolished for:
• fairness concerns
• double taxation issues
• administrative complexity
• political unpopularity
With a massive intergenerational wealth transfer underway, inheritance tax in Australia may re-emerge in future policy debates.
No proposal is currently active, but the discussion is inevitable.
Practical Takeaways
• “No inheritance tax” does not mean “no tax.”
• Superannuation can create real and unexpected tax bills.
• Executors should obtain legal tax advice before distributing assets.
• Property sales within an estate require strict CGT timing analysis.
• Beneficiaries inherit tax obligations as well as assets.
• Wills, super nominations, and estate plans must be regularly updated.
Final Word
Australia’s position is simple:
We don’t tax the fact that you inherited something — we tax what happens next.
The difference between a smooth, low-tax inheritance and a messy, expensive one often comes down to early planning and correct legal advice.
If you need assistance navigating deceased estates, CGT issues, superannuation death benefits or inheritance tax consequences in Australia, Chris Garlick provides clear, defensible legal guidance backed by tax law.