Is There Inheritance Tax in Australia? How It Works

Sorting out what happens after a family member passes away is tough enough without tax confusion adding to the mix. Many Australians are surprised to hear that we don’t have an inheritance tax in the traditional sense. While you won’t be taxed for inheriting money or assets, that doesn’t necessarily mean tax won’t be part of the picture. Capital gains tax may come into play down the track if, say, you sell inherited property. Superannuation payouts might also be taxed depending on who the beneficiary is. So while inheritance tax in Australia isn’t a line item here, other tax implications can still matter, and it pays to know where you stand.

So, What Taxes May Apply Instead?

Even though Australians don’t have an inheritance tax, certain taxes can still apply depending on the assets involved. Understanding these taxes ensures the process is straightforward for the beneficiaries.

Capital Gains Tax (CGT)

Capital gains tax may apply to inherited property, but the rules depend on when the property was bought and how it’s managed afterwards. Properties purchased before September 20, 1985, are generally CGT-free as they predate CGT laws. As for properties acquired after that date, beneficiaries inherit the original cost base, meaning any profit made when they sell the property could be subject to CGT.

However, if the property was the deceased’s main inheritance, the beneficiary might qualify for a principal residence exemption. This typically applies if the property is sold within two years of the owner’s passing.

Here’s an example: Say you inherit a rental property that has increased in value over time. CGT will likely be payable when you eventually decide to sell.

Superannuation Death Benefits Tax

Superannuation death benefits may be tax-free or taxable depending on who receives the payout and how it’s structured. A financial dependent, such as a spouse, de facto partner, or a child under 18, generally won’t pay tax on the super death benefit. On the other hand, non-dependents such as adult children or unrelated beneficiaries could face tax on specific components of the payout.

Suppose a super fund pays a lump sum to a non-dependent beneficiary. In that case, the taxable portion of that payment might attract tax, depending on how the fund manages the money.

Income from Inherited Assets

While inheritance itself isn’t taxed, income generated from inherited assets is. Rental income from an inherited property must be declared and taxed according to the beneficiary’s income tax rate. Dividends from shares passed down are also taxable. Interest earned on money held in bank accounts as part of an estate is included as income and taxed accordingly. If an estate remains open while assets are managed, any income it earns during that time must be reported and taxed as well.

Now take shares, for instance. If they’re passed on through an estate and continue paying dividends, that income is treated as assessable income for the beneficiary. Those dividends must be reported on their tax return and will be taxed at their marginal rate.

Estate Planning and Tax Implications: What You Should Know

Having a valid Will in place is one of the most effective ways to give legal clarity after you’re gone. Without one, your estate may be distributed according to state laws instead of your preferences. While there’s no formal inheritance tax in Australia, tax consequences can still arise depending on how assets are structured and transferred. A Will allows you to choose who receives what, appoint an executor you trust, and nominate guardians for minor children. It also lays the foundation for other planning tools, like testamentary trusts, to manage how assets are passed on.

A testamentary trust can manage estate assets and address tax implications after death. Set up through the terms of a Will, it only occurs after the estate is administered and nominated assets are distributed to the trust instead of directly to beneficiaries.

The most common type is the discretionary testamentary trust, which allows the trustee to decide how income from those assets is shared among beneficiaries. This flexibility reduces overall tax paid by distributing income to those on lower marginal tax rates, including young children or family members with little to no income. It can be a valuable tool for tax minimisation, particularly in families where beneficiaries have varied income levels or changing financial circumstances.

Beyond tax planning, it also offers added protection as it helps keep inherited assets separate from potential creditor claims or family law disputes. And in cases where there are concerns about how a beneficiary may manage their inheritance, the trust structure allows for controls to be put in place through professional trustees or conditions around asset access.

It’s also worth examining how your super and investment assets are structured since these can affect tax outcomes and how your estate is managed later on.

Tips for Structuring Superannuation and Investment Assets

• Review your Superannuation Nominations

Check that your binding death benefit nominations are current and reflect your wishes. This ensures the trustee pays your super to the person or people you’ve chosen, which can avoid delays and tax complications.

• Think about Asset Ownership

Assets held jointly or in a trust don’t form part of your estate, which means they pass automatically to the surviving owner or are dealt with under trust terms. Knowing this can help you decide how to structure property or shareholdings.

• Factor in Tax Outcomes for Beneficiaries

If you own income-producing assets like shares or rental properties, consider who might inherit them and their personal tax rates. Distributing assets to spread income across lower-rate taxpayers can be more tax-effective.

• Consider Getting Professional Advice Early On

Estate planning intersects with tax, super, and trust law. This means that having the right people involved, including accountants and lawyers, can significantly impact the outcome.

Why Professional Advice Matters

You can make all the right plans, but without the proper structure behind them, your estate might not be carried out as intended. That’s where professional advice can make a real impact: by bringing clarity, spotting risks, and making sure your decisions hold up under the law. At Rising Tide Financial, we help clients protect their legacy through tailored strategies that reduce tax liabilities, clarify intentions, and keep things as simple as possible for their families down the track.

Our team considers how different assets are structured, how beneficiaries might be affected, and how tools like trusts or super nominations could be used to their advantage. And while Australia has no formal inheritance tax, that doesn’t mean tax outcomes aren’t in play here. Knowing how different distributions are taxed can help you shape a plan that makes more sense for you and the people you care about.

If you’re thinking through your estate plan or revisiting an old one, reach out to chat with our financial planners. A quick conversation today could spare your family stress and ensure your wishes are observed.