In short

An inheritance is not income under the Age Pension income test but does increase assessable assets from the date received. Notify Services Australia within 14 days. The taper reduces your pension by $3 per fortnight for every $1,000 above the full-pension threshold. Home improvements, funeral bonds, lifetime annuities, and debt repayment are the main structuring options.

For Australian Age Pension recipients, receiving an inheritance is a normal life event that has real but manageable consequences. The inheritance becomes assessable under the assets test, notification to Services Australia is required within 14 days, and several legitimate planning tools exist to manage the impact. None of this is cause for alarm — but it does require prompt, deliberate action.

How does Centrelink treat an inherited asset?

An inheritance is not assessable income under the Age Pension income test. It is not added to your taxable income, and it does not count as earnings. What changes is the assets test. From the date the inheritance is received, the asset — in whatever form it arrives — becomes part of your assessable asset base.

The form of the inheritance matters. Cash held in a bank account or term deposit is a financial asset and attracts deeming for income test purposes; the deemed rate (1.25% on the first $64,200 of total financial assets for a single, 3.25% above, as at 20 March 2026, per DSS Guide 4.4.1.10) applies regardless of what the account actually earns. Shares and managed funds are similarly treated as financial assets subject to deeming. An investment property inherited in addition to your principal home is assessed at market value with no exemption. An inherited home that you move into and make your principal residence is exempt from the assets test — it becomes your new exempt home. Vehicles and personal effects are assessed at second-hand market value, and Centrelink accepts the owner's estimate unless it appears significantly understated. Household contents default to $10,000 per DSS Guide (SSAct s.1118(3)) — typical household items inherited alongside a cash legacy will not materially change this figure unless they include high-value art, jewellery, or collectibles.

How are super death benefits taxed when you inherit them?

If you receive a superannuation death benefit as a non-tax-dependant of the deceased — typically as an adult child where the deceased was your parent — tax applies to the taxable component before it reaches you. The rates (ATO, https://www.ato.gov.au/individuals-and-families/super-for-individuals-and-families/super/withdrawing-and-using-your-super/superannuation-death-benefits):

  • Taxed element of the taxable component: 15% plus 2% Medicare levy = effectively 17% (when paid direct to the beneficiary by the super fund)
  • Untaxed element of the taxable component: 30% plus 2% Medicare = effectively 32%
  • Tax-free component: no tax

A nuance worth knowing: if the super death benefit is paid first to the deceased estate (rather than direct to the beneficiary), and is then distributed via the estate, Medicare levy does NOT apply (ATO, https://www.ato.gov.au/tax-and-super-professionals/for-superannuation-professionals/apra-regulated-funds/paying-benefits/paying-superannuation-death-benefits). On a $500,000 fully-taxed-component death benefit to an adult child, this saves 2% × $500,000 = $10,000. The trustee should always model the direct-vs-estate route for non-dependants when meaningful taxed amounts are involved.

After tax, the after-tax proceeds become assessable assets in your hands.

What is the 14-day notification obligation for inheritance?

Receipt of an inheritance is a notifiable event under the Social Security Act 1991. You are required to notify Services Australia within 14 days of the change in your financial circumstances. This is not optional and not flexible. Late notification results in overpayment of pension — and overpayments are debts that must be repaid, sometimes with interest.

Services Australia data-matches with banks, the ATO, property registries, and superannuation funds. Substantial deposits, property transfers, and super death benefit flows surface routinely in these systems. The "wait and see if Centrelink notices" approach is not a strategy.

Notification is straightforward: online through myGov, by phone, or in person at a Centrelink office.

What does the Age Pension impact of an inheritance actually look like?

The assets test taper rate is $3 per fortnight for every $1,000 of assessable assets above the full-pension threshold (DSS Social Security Guide 4.2.3, https://guides.dss.gov.au/social-security-guide/4/2/3, applying from 1 January 2017 per SSAct s.1064-G4). If you are already in the taper zone — meaning your current assets already exceed the full-pension threshold — a $200,000 cash inheritance reduces your pension by exactly $3 per $1,000, or $600 per fortnight ($15,600 per year). A $100,000 inheritance: $300 per fortnight. These figures follow directly from the taper rate with no further calculations.

For a single homeowner with $400,000 in assessable assets (already in the taper zone, since the full-pension threshold for a single homeowner is $321,500 as at 20 March 2026) who receives a $200,000 cash inheritance: total assets become $600,000. Pension reduction = ($600,000 − $321,500) ÷ 1,000 × $3 = $835.50 per fortnight (vs $235.50 before). The pension falls by $600/fortnight = $15,600/year. The cut-off at which pension ceases entirely for a single homeowner is around $722,000 — at $600,000 in assets the pensioner still receives a meaningful partial pension. And they are materially better off overall: they have $200,000 of new assets, less a partial pension offset.

What planning options reduce the Age Pension impact of an inheritance?

Receiving and notifying the inheritance is the first step. The second is considering whether any legitimate structuring can reduce the assets test impact. Several options are available:

  • Renovating or improving the principal home converts assessable cash to exempt home value. The home is outside the assets test entirely — a dollar spent on genuine home improvement is a dollar removed from assessable assets, with a corresponding improvement to living environment.
  • Funeral bonds and prepaid funeral investments are exempt from the assets test up to the applicable limit per person (indexed annually — confirm current figure with Services Australia). For a couple, two bonds can each be held, doubling the exempt amount.
  • Qualifying lifetime annuities — specifically those structured with a capital access schedule, commenced on or after 1 July 2019 — receive a 40% assets test reduction, meaning only 60% of the purchase price is assessed (FirstTech Strategy Matrix 2025-26; DSS Guide 4.9). For a pensioner near the threshold, this can materially reduce Centrelink impact while converting a lump sum into predictable income.
  • Younger partner's super accumulation — contributing inheritance funds to a partner under Age Pension age, in super accumulation phase, shifts the asset outside the assessable base until the partner reaches 67 (see the spouse-contribution worked example in the related non-concessional-contributions-retirement article).
  • Debt repayment — paying down a $100,000 mortgage with inheritance cash eliminates $100,000 from assessable assets with no Centrelink consequence (assuming the home is the principal residence).

Why doesn't gifting away an inheritance restore your Age Pension?

Some pensioners, facing a large pension reduction after an inheritance, consider giving the money away to restore the pension. This does not work. Pensioners may give away up to $10,000 in a financial year and up to $30,000 over five financial years without triggering the deprivation rules (Services Australia, https://www.servicesaustralia.gov.au/how-much-you-can-gift). Any amount gifted above these thresholds in a five-year period continues to be assessed as if still held — for five years from the date of each gift. Gifting a $300,000 inheritance to children to reduce the pension impact simply results in $300,000 (minus $10,000 of the annual free amount) continuing to be assessed for five years while the asset itself is gone. Worst of both worlds: lost the money, kept the pension reduction.

Does renouncing an inheritance avoid the Centrelink consequences?

Some pensioners ask whether formally renouncing an inheritance — declining to accept it at all — avoids the Centrelink consequence. It does not. Centrelink treats an inheritance disclaimer as a gift from the beneficiary, subject to the same deprivation rules and the same five-year assessment (Law Society Journal, https://lsj.com.au/articles/ready-steady-no-tips-and-traps-for-beneficiaries-wanting-to-reject-an-inheritance/, summarising the Social Security Act treatment). The deprivation rules apply equally to:

  • Formal disclaimer / renunciation
  • Deed of Family Arrangement that redirects the inheritance to other family members
  • Any other mechanism that has the effect of waiving the entitlement

The result: the disclaimed amount is assessed as if still held for five years from the date of the disposal. So you give up the asset entirely AND keep the pension reduction. Renunciation is almost never the right answer for pension recipients.

In practice, accepting and structuring the inheritance is almost always preferable. A $300,000 inheritance that reduces the annual pension by $23,400 still leaves the pensioner $276,600 better off in year one, and the pension reduction is only a partial offset across the years that follow.

What does inheritance structuring look like for a single pensioner?

Consider Margaret, 74, single homeowner, currently receiving a part Age Pension. Her assessable assets before inheritance are $420,000 (already in taper zone — full-pension single homeowner threshold $321,500). She receives a $180,000 cash inheritance from her late brother's estate. Her assessable assets jump to $600,000.

Pension reduction: ($600,000 − $321,500) × $3 ÷ $1,000 = $835.50/fortnight. Pre-inheritance: ($420,000 − $321,500) × $3 ÷ $1,000 = $295.50/fortnight. Net pension reduction: $540 per fortnight = $14,040/year.

Margaret notifies Centrelink within 14 days (online through myGov). She then considers structuring:

  • Spending $40,000 on long-needed home renovations (kitchen + bathroom): converts $40,000 from assessable to exempt. Saves $120/fortnight in pension.
  • Putting $80,000 into a qualifying lifetime annuity (post-1 July 2019, capital-access compliant): only 60% × $80,000 = $48,000 assessed. Saves $96/fortnight.
  • Holding the remaining $60,000 in cash for liquidity.

Net pension recovered through structuring: ~$216/fortnight = ~$5,600/year. Margaret keeps the inheritance, loses about $8,400/year in pension instead of $14,040, and ends up with a renovated home and a guaranteed lifetime income stream.

How is an inherited super death benefit treated for an adult child pensioner?

Consider David, 70, full Age Pension recipient. His mother dies aged 95 with $480,000 in superannuation, all taxable component (taxed element). David is named binding beneficiary; he is a non-tax-dependant adult child.

If the fund pays direct to David: 17% tax (15% + 2% Medicare) = $81,600 tax. David receives $398,400 net. If the fund pays first to the estate, then estate distributes to David: 15% tax (no Medicare) = $72,000 tax. David receives $408,000 net.

The estate route saves $9,600 for the same gross benefit. David should ask the executor whether the binding nomination can be replaced (or whether the trustee can pay to estate by trustee discretion if no binding nomination exists), and whether the will provides a suitable distribution mechanism. This is general information; the executor and the fund trustee determine the actual route based on the deceased's nomination and the trust deed.

After tax, David's $408,000 (estate route) becomes assessable. He's already on full pension, so his pre-inheritance assets must be below the threshold. Adding $408,000 puts him deep into the taper zone. He notifies Centrelink within 14 days, then works through the same structuring options Margaret did. The full Age Pension drops to a partial pension; he is still substantially better off.

How can you plan ahead when an inheritance is anticipated?

For pensioners who know an inheritance is likely — because of elderly parents or a known estate — pre-event planning produces better outcomes than the reactive scramble. Working through the form, size, and arrival timing with a financial adviser before the event allows calm decision-making when the inheritance lands.

How does an inheritance affect a couple's Age Pension?

In a couple's assets test, both partners' assets are combined. An inheritance flowing to one partner is assessed against the combined household. The planning options are the same — the recipient of the inheritance does not change which tools apply.

Sources

Key takeaways

  • An inheritance is not assessable income under the Age Pension income test — it does not affect the income test at all. What changes is the assets test: from the date the inheritance is received, its value is added to your assessable asset base. The taper rate reduces the pension by $3 per fortnight for every $1,000 of assessable assets above the full-pension threshold.
  • You are required to notify Services Australia within 14 days of receiving an inheritance. Late notification creates an overpayment debt. Services Australia data-matches with banks, the ATO, property registries, and super funds — undisclosed inheritances are routinely identified.
  • Several structuring tools can reduce the assets test impact: spending on principal home improvements (home value is exempt), funeral bonds (exempt up to the indexed cap), qualifying lifetime annuities commenced on or after 1 July 2019 (only 60% of purchase price assessed), contributing to a younger partner's accumulation super, or using cash to repay a mortgage on the principal home.
  • Gifting away an inheritance to restore the pension does not work. Centrelink allows gifts of up to $10,000 per financial year and $30,000 over five years without deprivation. Any amount above those thresholds continues to be assessed as if still held for five years from the date of the gift. Similarly, formally renouncing an inheritance is treated as a gift — the deprivation rules still apply.
  • Super death benefits paid to an adult child who is a non-tax-dependant attract 15% plus 2% Medicare levy on the taxable component. If paid first to the deceased estate and then distributed, Medicare levy does not apply — saving 2% on the full taxable amount. This routing decision should be modelled before the benefit is paid.

Frequently asked questions

Does an inheritance affect my Age Pension?

Yes, but only through the assets test — not the income test. An inheritance is not treated as income and does not affect any income test calculations. From the date you receive the inheritance, its value increases your assessable assets. The pension is then reduced by $3 per fortnight for every $1,000 of assessable assets above the full-pension threshold.

Do I have to tell Centrelink about an inheritance?

Yes. Receipt of an inheritance is a notifiable change in circumstances under the Social Security Act. You must notify Services Australia within 14 days. Services Australia data-matches with banks, the ATO, property registries, and superannuation funds — inheritances of meaningful size are routinely identified. Late notification creates an overpayment debt that must be repaid.

Can I give away an inheritance to protect my Age Pension?

No — or at least not effectively. Centrelink permits gifts of up to $10,000 per financial year and $30,000 over five consecutive years without triggering deprivation rules. Any gifting above those thresholds continues to be counted as part of your assessable assets for five years from the date of each gift, even though the money is gone. You end up with the pension reduction and without the asset.

What are the best ways to reduce the Age Pension impact of an inheritance?

Home improvements that increase the value of your principal home convert assessable assets to exempt home equity. Prepaid funeral bonds are exempt up to the indexed cap. Qualifying lifetime annuities (post-1 July 2019, with a capital access schedule) attract only 60% assets test assessment. Contributing to a younger partner's super accumulation phase removes the asset from your assessable base until they turn 67. Paying off the mortgage on your principal home eliminates debt against a taxable asset without creating a new assessable asset.

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.