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 may also be taxed depending on the beneficiary. 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 can provide legal clarity about what happens to your estate. Without one, your assets may be distributed according to state laws rather than your wishes. While there is no formal inheritance tax in Australia, tax consequences can still arise depending on how your assets are structured and transferred.

A Will can help you:

• Choose who receives your assets
• Appoint an executor you trust
• Nominate guardians for minor children
• Set the foundation for planning tools such as testamentary trusts

How testamentary trusts can help

A testamentary trust is established through the terms of a Will and comes into effect after the estate has been administered. Assets can then be distributed to the trust rather than directly to beneficiaries.

The most common type is the discretionary testamentary trust, which gives the trustee flexibility over how income is distributed among beneficiaries. This can have tax advantages when beneficiaries have different income levels. It may also provide:

• Greater flexibility in how inherited assets are managed
• Potential tax benefits by distributing income among beneficiaries
• Protection of inherited assets from potential creditor claims or family law disputes
• Control over how and when a beneficiary receives their inheritance

How your super and investments fit into estate planning

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. Getting the right superannuation advice can help you understand your options and how these assets fit into your broader estate planning strategy.

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.

Estate planning intersects with tax, super, trust law and retirement planning. This means having the right people involved, including financial advisors, accountants and lawyers, can help you make informed decisions about how your assets are structured and managed.

What Happens When You Inherit Assets From Overseas?

There is no inheritance tax in Australia when you inherit money or assets from overseas. However, the tax treatment can depend on where the assets came from and how you receive them.

For example, if an inheritance is received through a foreign trust, section 99B of the tax law may apply. The ATO explains that certain money or assets paid to you or applied for your benefit from a foreign trust may need to be included in your assessable income, depending on their nature and source.

If you later sell an inherited asset, capital gains tax may also apply, while currency movements can affect its Australian-dollar value. The tax treatment will ultimately depend on the type of asset, where it is held and how it was transferred to you.

What About When There’s No Will?

If someone dies without a valid Will, they are considered to have died intestate. The law then determines who inherits their assets rather than the person’s own wishes. The rules vary between states and territories, but generally consider spouses, children and other relatives when deciding who receives the estate.

Since there is no formal inheritance tax in Australia, inheriting assets without a Will does not create an inheritance tax liability. However, other tax may apply to the assets after they are inherited, such as tax on income they generate or capital gains tax if they are later sold.

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 help reduce tax liabilities, clarify intentions, and keep things as simple as possible for their families down the track. 

Our team considers how assets are structured, how beneficiaries may be affected, and how trusts or super nominations can support your wishes. While there is no formal inheritance tax in Australia, different distributions can still have tax implications for your beneficiaries.

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.

Frequently Asked Questions