Receiving an inheritance is often linked to one comforting tax message: Australia does not have an inheritance tax.
That is true. In Australia, a person is not generally taxed simply because they receive money or assets from a deceased estate.
But that does not mean every inheritance is tax-free.
The difference matters.
Receiving $200,000 in cash from an estate may have no immediate tax impact. By contrast, inheriting a $900,000 investment property, a share portfolio, or a $500,000 superannuation death benefit can lead to very different outcomes.
Tax may arise later when an inherited asset is sold. Income earned from inherited investments may be taxable. Superannuation death benefits can also be taxed differently depending on who receives them.
That means two beneficiaries can inherit assets worth the same amount, yet end up with very different after-tax results.
Understanding a few common myths can help families plan ahead and avoid surprises.
Myth 1: If Australia has no inheritance tax, an inheritance is tax-free
Australia does not generally tax someone simply for receiving an inheritance.
For example, if Maria dies and leaves her daughter Anna $300,000 in cash, Anna would not normally include that amount as income in her tax return just because she received it.
But if Maria leaves Anna an investment property worth $900,000 instead, the outcome changes.
Anna would still not usually pay tax just because she inherited the property. However, capital gains tax (CGT) may apply when she later sells or disposes of it. The Australian Taxation Office notes that CGT generally does not apply merely because a beneficiary inherits a dwelling, but it may apply later on sale.
The same idea applies to shares. Anna would not usually be taxed just for receiving them, but dividends received after inheritance may be taxable, and selling them later could create a capital gain or loss.
The key question is not just:
Do I pay tax when I inherit?
It is also:
What tax consequences come with the assets I am inheriting?
A simple inheritance tax flow
- Receive the inheritance.
- Check what type of asset it is.
- Work out whether income or CGT may apply later.
- Keep records so the future tax position can be calculated correctly.
Myth 2: I inherited the family home, so I will never pay CGT on it
The family home gets significant tax concessions in Australia, but an inherited home is not automatically exempt from CGT forever.
Special rules apply to dwellings inherited from a deceased person.
In some cases, a beneficiary or executor can sell an inherited dwelling within two years of death without CGT applying. Whether the full exemption is available depends on factors such as when the deceased acquired the property, whether it was their main residence, and whether it was used to produce income.
That two-year period can therefore be very important.
Case study: Selling Mum’s home
Helen bought her home in 1998 for $240,000.
It was her main residence until she died in January 2026, and it was not being rented immediately beforehand.
Her son, David, inherits the house.
At Helen’s death:
- estimated market value: $850,000
- value when eventually sold: $920,000
- increase since Helen’s death: $70,000
If David sells the property and settlement occurs 18 months after Helen’s death, the sale may be fully exempt from CGT if the relevant conditions for the inherited main residence exemption are met.
Now imagine the family delays the sale for several years.
Perhaps one child lives in the home, the beneficiaries cannot agree on whether to sell, or the property is rented out.
The tax result can change.
Some rules may extend the two-year period where disposal is delayed by qualifying circumstances outside the beneficiary’s or trustee’s control. But families should not assume an extension will automatically be available.
This is why the period soon after inheritance can matter so much.
A decision that seems to be about “keeping Mum’s house for a while” may also be a tax decision.
Myth 3: The cost of an inherited asset always resets to its value when the person dies
This is another common misunderstanding.
When someone inherits an asset, it is easy to assume the starting point for CGT is the market value at the date of death.
Sometimes that is right. Sometimes it is not.
The rules can depend on when the deceased originally acquired the asset and, for dwellings, whether it was the deceased’s main residence and whether it was used to produce income. For some assets acquired before CGT began on 20 September 1985, the market value at death may matter. For many post-CGT assets, the beneficiary may instead take over the deceased’s cost base.
That can make a very large difference.
Case study: The investment property bought years ago
George bought an investment property for $300,000 in 2004.
Assume that after allowable acquisition costs and capital expenditure, George’s CGT cost base immediately before death is $360,000.
When George dies, the property is worth $650,000.
His daughter Sophie inherits it.
Three years later, Sophie sells it for $760,000.
At first glance, Sophie might expect the capital gain to be:
| Calculation | Amount |
| Sale price | $760,000 |
| Market value when inherited | $650,000 |
| Expected gain | $110,000 |
But if the relevant rules mean Sophie inherits George’s $360,000 cost base, the calculation could instead be:
| Calculation | Amount |
| Sale price | $760,000 |
| Inherited cost base | $360,000 |
| Capital gain before other adjustments | $400,000 |
That is a substantial difference.
Other selling costs, eligible cost base expenditure, capital losses and the CGT discount may affect the final taxable capital gain. An individual beneficiary may also be able to access the 50% CGT discount where the requirements are met.
The lesson is simple: do not rely on the property’s value at the date of death until you know which cost base rules apply.
It also shows the value of keeping records.
Purchase contracts, legal fees, stamp duty records, renovation invoices and details of major improvements can all become important years later.
If those records are missing, a beneficiary may have a very difficult task reconstructing the cost base of a property bought by a parent decades earlier.
Myth 4: Superannuation inherited by the children is always tax-free
Superannuation can be one of a family’s biggest assets, yet its treatment on death is often misunderstood.
A superannuation death benefit is not taxed in the same way as ordinary estate assets.
The tax outcome depends on a number of factors, including who receives the benefit and the components within the deceased person’s super balance.
For tax purposes, a spouse or de facto spouse is generally treated as a death benefits dependant. A child under 18 may also qualify, along with certain financially dependent people and those in an interdependency relationship with the deceased. An adult child who was not financially dependent on the deceased will generally not be treated as a death benefits dependant just because they are the child.
That distinction can be very significant.
A lump sum super death benefit paid to a tax dependant can generally be received tax-free.
For a non-dependant, however, the taxable component may be taxed. The taxed element is generally subject to a maximum tax rate of 15% plus Medicare levy. The untaxed element can be taxed at up to 30% plus Medicare levy.
Case study: The same super balance, two different outcomes
Assume Michael has a $500,000 superannuation death benefit made up of:
| Component | Amount |
| Tax-free component | $100,000 |
| Taxable component – taxed element | $400,000 |
| Total | $500,000 |
Now consider two beneficiaries.
Scenario 1: Michael’s spouse receives the lump sum
If the spouse qualifies as a death benefits dependant for tax purposes, the lump sum can generally be received tax-free.
Scenario 2: Michael’s 35-year-old son receives the lump sum
His son lives independently, earns his own income and was not financially dependent on Michael.
If the son is a non-dependant for tax purposes, the $400,000 taxed element could be taxed at up to:
$400,000 x 15% = $60,000
Medicare levy may also apply.
The same $500,000 super balance can therefore produce a very different after-tax result depending on who receives it.
That is one reason estate planning should treat superannuation separately from the will.
Myth 5: Once I receive the inheritance, there is nothing more to report
Receiving an inheritance and earning income from it are two different things.
Suppose James inherits $400,000 in cash.
Receiving the $400,000 itself will generally not trigger inheritance tax.
James places the money in a term deposit earning 4.5%.
Over the following year it generates:
$400,000 x 4.5% = $18,000
That $18,000 of interest is James’ income. It may form part of his assessable income even though the original $400,000 came from an inheritance.
The same principle can apply to other inherited assets.
- An inherited rental property can produce taxable rental income.
- Inherited shares can pay taxable dividends.
- Inherited investments can generate interest, distributions or capital gains.
The Australian Taxation Office distinguishes between receiving the inheritance itself and the income earned afterwards.
What happens after an asset is inherited?
Once the asset is transferred, the new owner must consider:
- ongoing income tax on earnings from the asset
- possible CGT when the asset is sold
- record-keeping for future tax calculations
Myth 6: Two children receiving $500,000 each have received equal inheritances
Estate planning often focuses on headline figures.
But equal market values do not always mean equal financial outcomes.
Consider a parent who wants to leave $1 million equally to two adult children.
Child one receives $500,000 in cash.
Child two receives an investment property worth $500,000.
On the day the estate is distributed, both appear to have received the same amount.
But the property may have an embedded capital gain because of its cost base. It may also need ongoing maintenance. If it is sold, agent’s fees and other costs may apply. Rental income may also be taxable.
The cash does not carry those same issues.
The same problem can arise when one child receives superannuation and another receives assets from the estate.
A better question may be not:
What is each asset worth today?
but:
What is each beneficiary likely to receive after tax, costs, liquidity and asset characteristics are taken into account?
This does not mean every estate should be divided
