A letter arrives from the solicitor a few months after a parent dies, setting out what has been left under the will – perhaps a share portfolio, a rental property, a superannuation payout, or simply a sum of cash. The question that follows almost every grieving family is the same one: what does the tax office want from this?
The short answer is reassuring. Australia has no inheritance tax and no estate tax, a point the Australian Taxation Office (ATO) states plainly. But that is not the end of the story – what happens to an inherited asset after it lands in someone’s hands can still create a tax bill, sometimes years down the track. Here is what the rules actually say.
Is there an inheritance tax in Australia?
No. Receiving money or property from a deceased estate is not a taxable event for the person who receives it. There is no percentage handed over to the ATO simply for inheriting, regardless of how large the sum or how valuable the property.
That is a different position from several other countries, and it is why the “no inheritance tax” line gets repeated so often. The detail that often gets missed is what comes next – because tax obligations can still arise once an inherited asset starts earning money, or once it is sold.
What happens to the estate before anyone receives anything?
Before a beneficiary sees a cent, the deceased estate itself is treated as a trust for tax purposes, and the executor – known formally as the legal personal representative – lodges tax returns on its behalf. For the first three income years after death, the estate can apply the individual tax-free threshold, meaning no tax is payable on the first part of its income, in the same way an individual taxpayer’s return works.
That concession runs out after three income years. From the estate’s fourth income year onward, a separate deceased-estate rate scale applies. For the 2025-26 financial year, taxable income from $0 to $416 attracts no tax; from $417 to $611, tax is 50% of the amount over $416; from $612 to $45,000, it is $97.76 plus 16% of the amount over $611; from $45,001 to $135,000, it is $7,200 plus 30 cents for every dollar over $45,000; from $135,001 to $190,000, it is $34,200 plus 37 cents for every dollar over $135,000; and above $190,000 it is $54,550 plus 45 cents for every dollar over $190,000. Deceased estates also miss out on tax offsets an individual would normally receive, such as the low-income tax offset, and no Medicare levy applies in this trust context.
The ATO’s own example involves a woman named Joan, whose estate ran from 6 April through to 30 June in its first year, then continued through two further full financial years. If taxable income in those years stayed at $18,200 or below, no tax was payable at all – the tax-free threshold simply absorbed it.
What tax applies once the asset is in your hands?
Once an asset such as shares or a rental property passes to a beneficiary, ordinary income tax rules apply to whatever it earns from that point – dividends from shares, rent from a property, interest from cash. That income is taxed the same way any other income is, added to the beneficiary’s own tax return.
There is a less obvious wrinkle too. If a beneficiary becomes “presently entitled” to income the estate earns before it is fully wound up – rental income collected while probate is still being sorted out, for instance – that income needs to go into the beneficiary’s own tax return, based on figures the legal personal representative provides.
Separately, capital gains tax (CGT) can apply if the beneficiary later sells an inherited asset such as shares or an investment property. The CGT bill is not triggered by inheriting the asset – only by disposing of it afterwards.
Selling an inherited house – when does the tax exemption apply?
An inherited property can be exempt from CGT when it is eventually sold, but the exemption is conditional. It generally applies only where the property includes a dwelling and that dwelling is sold together with the land underneath it. Selling land or a structure separately from the dwelling generally forfeits the exemption.
There is a further restriction worth knowing about. Foreign residents, and anyone inheriting from a person who was a foreign resident at the time of death, are generally not entitled to this main residence exemption at all.
How is an inherited superannuation payment taxed?
Superannuation does not automatically become part of the deceased’s estate – funds pay it out separately as a “super death benefit” to whoever has been nominated, where the fund’s own rules allow binding or non-binding nominations. If the nomination is non-binding, or there is no nomination at all, the fund trustee uses its discretion to decide which dependant or dependants receive the benefit, or pays the legal personal representative to distribute it under the will.
The tax treatment of that payment is not one flat rate – it depends on several factors working together: whether the recipient was a tax-law dependant of the person who died, whether the benefit is paid as a lump sum or as an income stream, whether it includes a taxable or tax-free component, and the ages of both the recipient and the deceased at the time of death. Two people receiving a payout from the same fund can end up facing quite different tax outcomes as a result. The ATO suggests people complete a “Super Health Check” during their own lifetime to confirm their super will go where they intend.
Because so many variables feed into both the deceased-estate rates and the super death benefit calculation, anyone handling a specific inheritance can confirm the figures that apply to their situation through the ATO, Services Australia or a licensed financial adviser, and MoneySmart’s website sets out the general framework in plain terms.
What that leaves a beneficiary with, in the end, is something simpler than the paperwork suggests: the money or the property itself arrives tax-free, and it is only what happens afterwards – the rent collected, the dividend paid, the sale eventually made – that the tax office has any interest in at all.
