In short

Death does not trigger capital gains tax in Australia — assets pass to beneficiaries tax-free. For assets bought after 20 September 1985, the beneficiary inherits the deceased's original cost base, so any gain since purchase becomes taxable on sale. Pre-1985 assets reset to market value at death. The deceased's main residence can be sold CGT-free within two years of death.

Australia abolished estate duty decades ago and has not reinstated any form of inheritance tax. Beneficiaries receive assets under a will or intestacy without paying tax on receipt. The tax comes later, when — and if — the inherited asset is sold. Capital gains tax (CGT) applies on disposal of inherited assets, and the amount owing depends on cost base rules that are entirely separate from the market value at the time of inheritance.

Understanding this framework matters for three groups of people: beneficiaries deciding whether to keep or sell inherited assets, executors navigating estate administration, and planners thinking now about what CGT consequences their estate will leave their beneficiaries.

Death does not trigger CGT

Under Division 128 of the Income Tax Assessment Act 1997, the deceased's death is not a CGT event. Assets passing from the deceased to their legal personal representative (the executor) or directly to beneficiaries do not trigger a capital gain or capital loss for the estate. The asset passes without tax, but with a cost base — and the cost base determines the beneficiary's CGT exposure on any later sale.

The cost base — what you inherit

For assets the deceased acquired after 20 September 1985 (so-called post-CGT assets), the beneficiary inherits the deceased's cost base. In practice, this typically means the price the deceased originally paid, plus eligible costs such as stamp duty, legal fees, and capital improvements. Any gain that accumulated over the deceased's entire ownership period becomes the beneficiary's problem when they sell. A family home the deceased purchased in 1990 for $200,000 and held until their death, now worth $2 million, passes to a beneficiary with a $200,000 cost base. The $1.8 million of unrealised gain is intact.

For assets the deceased acquired before 20 September 1985 (pre-CGT assets), the inherited cost base resets to market value at the date of death. The beneficiary does not inherit the deceased's cost base; they effectively start fresh at the value the asset had on the day it passed to them. This is more favourable for beneficiaries of long-held pre-1985 assets.

The two-year main residence window

For the deceased's main residence, a special concession in section 118-195 of ITAA 1997 provides what amounts to a CGT-free window of up to two years. If the property was the deceased's main residence at the time of death and was not being used to produce assessable income at that time — that is, the deceased was actually living in it, not renting it out — then the full main residence CGT exemption applies provided the property is disposed of within two years of the date of death.

Selling within two years: no CGT, regardless of the gain since the deceased purchased the property. A home the deceased bought for $150,000 in 1992 and that is now worth $1.8 million produces no CGT liability if sold within two years of death. This is one of the most significant concessions in the CGT framework.

Selling after two years: partial exemption applies, calculated in proportion to the time the property was a main residence relative to the total period it was owned after the CGT commencement date. For a property with a long post-CGT ownership period, the CGT liability on a sale five years after death can be substantial.

The ATO Commissioner has discretion to extend the two-year period where delay was outside the beneficiary's control — common qualifying circumstances include a will dispute or family provision claim holding up the estate, legal complexity in establishing title, or genuine difficulty selling the property. The extension is not automatic; an application must be made and the circumstances must genuinely qualify. Specialist tax advice on seeking an extension is worthwhile where the two-year period has been breached through genuinely unavoidable delay.

Inherited investment property and shares

For investment properties and share portfolios passing through the estate, the cost base rules above apply: post-CGT assets carry the deceased's cost base; pre-CGT assets reset to market value at death. For a beneficiary receiving a substantial share portfolio the deceased held since the 1980s or 1990s, the cost base may be modest relative to current value, creating a large latent gain. The timing of disposal — and the beneficiary's own tax position in the year of sale — becomes genuinely important.

Holding inherited investment assets does not avoid CGT; it defers it. The gain continues to accumulate from the inherited cost base and will ultimately be taxable on disposal. The trade-off between realising the gain now (at the current beneficiary's marginal rate, potentially in a year with other significant income) versus deferring it (at the cost of continued accumulation) is a real calculation worth doing with a tax accountant.

Super death benefits — a different framework

Superannuation death benefits are not governed by the CGT framework. They have their own tax treatment (depending on the recipient's relationship to the deceased, the tax components of the benefit, and the payment method — covered in a separate article). The CGT analysis applies to investment assets passing through the estate, not to super.

Practical priorities for beneficiaries and executors

The most time-sensitive decision is the main residence. Where the deceased had a home they were living in, the two-year window starts immediately from the date of death. Executors and beneficiaries who intend to sell the home should prioritise moving quickly enough to complete settlement within two years. For estates where family circumstances, probate delays, or beneficiary disagreements might threaten the window, awareness of the ATO extension discretion matters.

For other inherited assets, establishing the cost base early — identifying the deceased's purchase price from old documents, tax returns, or fund records — makes future disposal planning much easier. The deceased's records are the starting point; the ATO also publishes guidance on reconstructing cost bases where records are incomplete.

Sources

Key takeaways

  • Australia has no inheritance tax — a beneficiary pays no tax on receiving an asset. CGT only arises later, when the asset is sold.
  • For assets the deceased acquired after 20 September 1985, the beneficiary inherits the deceased's cost base, so any gain accumulated over the deceased's whole ownership period becomes the beneficiary's problem on sale.
  • For assets the deceased acquired before 20 September 1985, the cost base resets to market value at the date of death — much more favourable for the beneficiary.
  • The deceased's main residence can be sold fully CGT-free if disposed of within two years of death, provided it was their main residence (not producing income) at the time of death.
  • Selling the main residence after the two-year window triggers a partial exemption, and the ATO Commissioner can extend the window in genuinely unavoidable delay cases such as a will dispute.

Frequently asked questions

Do I have to pay tax when I inherit an asset in Australia?

No. Australia has no inheritance tax or estate duty, and death itself is not a capital gains tax event. Tax only becomes relevant later, if and when you sell the inherited asset.

What cost base do I inherit for a property or shares I've been left?

For assets the deceased bought after 20 September 1985, you inherit their original cost base — typically what they paid, plus eligible costs. For assets bought before that date, your cost base resets to the market value on the date of death.

Can I sell my late parent's house without paying CGT?

Yes, if it was their main residence (not rented out) at the time of death and you sell it within two years of the date of death — the full main residence exemption applies regardless of how much the property has grown in value since it was purchased.

What happens if I can't sell the inherited home within two years?

A partial exemption applies, calculated in proportion to how much of the ownership period it was used as a main residence. The ATO Commissioner can extend the two-year window in genuinely unavoidable circumstances — such as a will dispute or family provision claim — but an application must be made and isn't automatic.

A note on advice. This article is general information only and doesn't account for your personal circumstances. Everyone's situation is different — before acting, it's worth talking it through with a licensed adviser who knows your full picture.