Inheritance Tax Australia: Do You Pay Tax on It?

Australia does not currently have a general inheritance tax. If you inherit money or assets from a deceased estate, the inheritance itself is generally not treated as ordinary assessable income, so you typically do not pay tax simply because you received it.

However, that does not mean every tax consequence associated with an inheritance disappears.

Tax can arise later if an inherited asset produces income, such as rent, interest or dividends, or if you sell or otherwise dispose of an inherited asset and a capital gain is realised. Superannuation death benefits can also have different tax treatment depending on the recipient and the type of benefit.

The Australian Government has also recently reiterated that its tax reforms are not introducing a tax on inheritances or inherited assets.

This distinction is important because the phrase “inheritance tax” can make it sound as though receiving an inheritance automatically creates a tax liability. In Australia, the tax question is usually about what happens to the inherited asset, rather than the inheritance itself.

Is there an inheritance tax in Australia?

No. Australia does not currently impose a general inheritance, estate or gift tax on beneficiaries simply because they receive an inheritance.

The Australian Treasury has historically confirmed that Australia does not levy wealth, estate, inheritance or gift taxes. More recently, the Australian Government has again stated that its current tax reforms do not introduce a tax on inheritances or inherited assets.

For example, if a parent leaves you $200,000 in cash under their will, the $200,000 is generally not taxable income merely because you inherited it.

Likewise, receiving jewellery, shares or other personal assets from a deceased estate does not normally mean you immediately add the value of those assets to your taxable income.

The tax treatment can change, however, once the inherited asset starts generating income or you dispose of it.

Do you pay tax on inherited money in Australia?

Generally, no. Inherited money is not normally treated as assessable income for the beneficiary.

The Australian Taxation Office states that beneficiaries generally do not need to declare an inheritance such as inherited money, property or jewellery as ordinary income.

For example:

Your parent leaves you $150,000 in their will. You receive the money from the estate and place it into a bank account. You generally do not pay income tax on the $150,000 inheritance itself.

But there is an important distinction.

If that $150,000 earns bank interest, the interest can become assessable income. Similarly, if inherited shares generate dividends, those dividends may have tax consequences.

So the inheritance itself may not be taxable, while income generated by the inheritance can be.

Do you have to declare an inheritance on your tax return?

In most cases, you do not declare the inherited amount itself as ordinary income.

The ATO says beneficiaries generally do not need to declare inherited money or assets such as property or jewellery. However, there are exceptions and ongoing tax obligations can arise depending on the type of asset and circumstances.

You should keep appropriate records showing:

what you inherited
when you inherited it
the value or cost information relevant to the asset
expenses associated with the asset
information supplied by the executor or legal personal representative
relevant valuations and acquisition records.

These records can become particularly important if you later sell an inherited property, shares or another CGT asset. If the inheritance also produces taxable income, understanding the Australian Tax Brackets can help you estimate how additional income may affect your overall tax position. The ATO specifically recommends retaining information about the deceased person’s acquisition of an asset, its value or cost and relevant expenses.

Do you pay capital gains tax on inherited property?

Usually, there is no CGT simply because you inherit a property. Capital gains tax may become relevant when the property is later sold or otherwise disposed of.

The rules can be complicated because the CGT treatment depends on factors including:

when the deceased acquired the property
whether it was the deceased’s main residence
whether it was used to produce income
when you inherited it
whether you are an Australian tax resident
how and when the property is disposed of
whether a main residence exemption or partial exemption is available.

The ATO confirms that a dwelling inherited after a person’s death is generally acquired for CGT purposes at the time of death, but CGT generally does not apply merely because the beneficiary receives the property. Instead, CGT can apply when the property is later disposed of.

Example: inherited family home

Suppose your mother leaves you her home.

You do not generally pay CGT merely because the property transfers to you following her death.

If you later sell the property, however, you may need to calculate whether a capital gain has occurred and whether an exemption applies.

Where the deceased’s home was their main residence immediately before death and certain conditions are satisfied, the main residence exemption can be relevant. The rules can also provide a two-year period in certain circumstances, although the exact application depends on the facts.

That means you should not assume that “inherited house = no CGT” or “inherited house = CGT automatically applies.” The correct answer depends on the property’s history and how it is treated after death.

What happens if you rent out an inherited property?

If you inherit a property and subsequently rent it out, the rental income can generally become assessable income.

For example, imagine you inherit an investment property worth $800,000. You do not generally pay income tax simply because the property is transferred to you.

But once you become the owner and receive $650 per week in rent, the rental income becomes relevant to your tax obligations.

Expenses associated with earning that rental income may also be relevant, subject to the normal tax rules.

There can also be CGT consequences when you eventually sell the property.

This is why an inherited investment property should be considered separately from the inheritance itself:

Receiving the property → generally no inheritance tax.

Earning rental income → potentially taxable income.

Selling the property → potentially a CGT event.

What about inherited shares?

Inherited shares are generally not taxed as ordinary income merely because you receive them.

However, two separate tax issues can arise.

1. Dividends

If the inherited shares pay dividends after you become entitled to them, those dividends may need to be included in your tax return. Franking credits may also be relevant depending on the circumstances.

2. Selling the shares

If you later sell the inherited shares, CGT may apply.

The calculation depends on factors including the deceased person’s acquisition date, cost base and the circumstances surrounding the inheritance. The ATO recommends keeping records of the deceased person’s acquisition information and relevant asset costs to help calculate CGT when an inherited asset is eventually sold.

The same broad principle can apply to other inherited CGT assets, including certain investments and crypto assets.

Is inherited superannuation taxable in Australia?

Superannuation is one of the major areas where an inheritance can have a different tax treatment.

A superannuation death benefit is not necessarily treated in exactly the same way as inherited cash or other estate assets.

The tax outcome depends on factors including:

whether the recipient is a tax dependant
whether the benefit is paid as a lump sum or income stream
the taxable and tax-free components
whether the taxable component contains taxed or untaxed elements
the circumstances of the deceased and recipient.

For example, the ATO states that where a super death benefit is paid as a lump sum to a dependant, it is generally tax-free. Where a benefit is paid to a non-dependant, tax can apply to the taxable component, subject to the applicable rules and offsets.

If the deceased person’s superannuation was held through a Self Managed Super Fund, the estate and beneficiaries may need to consider additional rules and documentation requirements. The tax treatment of the death benefit still depends on the nature of the benefit and the recipient’s circumstances, so professional advice may be appropriate for more complex arrangements.

This is one reason it is risky to assume that all inherited assets are automatically tax-free.

If your inheritance includes a substantial superannuation death benefit, the tax treatment should be checked before the benefit is distributed or dealt with.

What happens to tax when someone dies?

An inheritance usually passes through a deceased estate, which is administered by the executor or legal personal representative.

The deceased person’s own tax affairs do not simply disappear when they die.

The executor may need to deal with the deceased person’s final tax return and, depending on the circumstances, tax returns for the deceased estate.

The ATO provides special tax treatment for deceased estates. For the first three income years, a deceased estate can generally access concessional individual tax rates with the full tax-free threshold, subject to the relevant requirements.

This is separate from whether the beneficiary pays tax on the inheritance they eventually receive.

In other words:

Tax obligations of the deceased or estate ≠ inheritance tax charged to the beneficiary.

That distinction is often overlooked.

What are the most common tax mistakes with an inheritance?

Receiving an inheritance can involve significant financial decisions, and several mistakes can create avoidable problems.

Assuming there is no tax obligation at all

The inheritance itself may not be taxable, but rental income, dividends, interest and later asset sales can create tax obligations.

Selling inherited property without checking the CGT history

An inherited property can have a complicated CGT history. The deceased person’s acquisition date, use of the property and main residence status can all matter.

Failing to keep valuation and acquisition records

Good records are essential when calculating a future capital gain. The ATO specifically recommends retaining relevant acquisition, value and expense information.

Treating superannuation like ordinary estate cash

Super death benefits can have their own tax rules, particularly where the recipient is not a dependant.

Assuming every family inheritance is identical

Tax treatment can differ substantially depending on whether you inherit cash, a family home, an investment property, shares, a business interest or superannuation.

Assuming your tax return does not need supporting records

Keeping accurate records is particularly important where an inheritance involves property, investments, rental income or other taxable transactions. Understanding common ATO Tax Return Audit Red Flags can also help you identify situations where incomplete records, inconsistent figures or incorrectly reported income could create unnecessary compliance issues.

What should you do after receiving an inheritance?

Receiving an inheritance can have consequences beyond the initial transfer of money or assets. For larger or more complex estates, early tax planning can help you understand potential income tax, CGT and superannuation implications before making decisions about the assets.

A practical approach is to separate the inheritance into individual assets rather than treating the entire estate as one tax category.

Step 1: Identify what you received.

Separate cash, property, shares, superannuation and other assets.

Step 2: Establish the relevant dates and values.

For CGT assets, obtain the deceased person’s acquisition information and relevant valuation records.

Step 3: Determine whether the assets produce income.

Check whether you are receiving rent, interest, dividends or other assessable income.

Step 4: Check CGT before selling anything.

Do not assume that selling an inherited asset is automatically tax-free.

Step 5: Review superannuation separately.

Confirm whether the payment is a super death benefit and whether you are a dependant for tax purposes.

Step 6: Get professional advice where the estate is complex.

This is particularly important where the estate includes property, a business, significant investments, foreign assets, trusts or substantial superannuation.

Inheritance Tax Australia: Do You Pay Tax on Inheritance?

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