If you've recently inherited money, property, shares or superannuation, one of the first questions you're likely to have is:
Do I have to pay tax on my inheritance?
The good news is that Australia does not have an inheritance tax. You generally don't pay tax simply because you've inherited money or assets from someone who has died.
However, that doesn't mean an inheritance is always completely tax-free.
Depending on what you've inherited and what you do with it afterwards, you may have tax obligations. Capital gains tax (CGT) can apply when you later sell an inherited asset, income tax may apply to income generated by inherited investments or property, and superannuation death benefits can have their own tax rules.
Understanding these rules before you sell, invest or restructure an inheritance can help you avoid unexpected tax and make better decisions about what to do with the money or assets you've received.
Important: This article provides general information only and doesn't take into account your personal circumstances. Tax and financial planning rules can be complex and change over time. Consider professional advice for your individual situation.
Is There an Inheritance Tax in Australia?
No. Australia does not currently have an inheritance tax or estate tax.
This means that if you inherit money, property, shares or other assets from a deceased estate, you generally don't pay a separate tax simply for receiving the inheritance.
The Australian Taxation Office (ATO) confirms that there are no inheritance or estate taxes in Australia.
However, tax can still arise in connection with inherited assets.
For example:
- you may pay capital gains tax if you later sell an inherited asset
- rental income from an inherited property may be taxable
- dividends or interest from inherited investments may be taxable
- a superannuation death benefit may be taxable depending on the circumstances
- an inheritance involving overseas assets may be subject to tax rules in another country
So while there is no inheritance tax in Australia, it's important to understand the tax treatment of the particular assets you've inherited.
Do You Pay Tax When You Inherit Money?
Generally, no.
If someone leaves you cash as part of their estate, you generally don't pay income tax simply because you've received the money.
For example, if your parent leaves you $300,000 in cash, you generally don't include that $300,000 as taxable income on your tax return simply because you've inherited it.
However, what happens after you receive the money is different.
If you place the $300,000 into a bank account and earn interest, that interest is generally taxable income.
If you invest the money and receive dividends, those dividends may be taxable.
If you use the inheritance to purchase an investment property, rental income from that property may be taxable.
In other words: The inheritance itself generally isn't taxed, but income or gains generated by the inheritance may be.
Do You Pay Tax When Youu Inherit Property?
Inheriting a property does not generally trigger an immediate capital gains tax bill.
However, the tax treatment can become more complicated if you later sell the property.
The outcome can depend on factors including:
- when the deceased acquired the property
- whether it was their main residence
- whether it was being used to produce income
- when you sell it
- whether you use the property as your own home
- how long you hold it before selling
The ATO has specific rules for inherited property and the calculation of its cost base for CGT purposes.
What happens if you inherit the family home?
If you inherit your parents' family home, you generally don't pay CGT simply because the property has been transferred to you following their death.
However, CGT may become relevant when you eventually dispose of the property.
There are specific exemptions and timing rules that can apply when a deceased person's main residence is inherited, so the outcome depends on the circumstances.
For example, the rules can be different depending on whether the property was the deceased person's main residence immediately before they died and whether it was being used to produce income.
This is one situation were getting advice before selling can be worthwhile.
What happens if you inherit an investment property?
If you inherit an investment property, there are two separate issues to consider.
First, the inheritance itself.
You generally don't pay CGT simply because you inherited the property.
Second, what happens afterwards.
If you continue renting the property, the rental income will generally need to be included in your taxable income.
If you eventually sell the property, CGT may apply based on the relevant cost-base rules.
This means that the decision about whether to keep, rent or sell an inherited property can have significant financial and tax consequences.
What Happens to CGT When You Sell an Inherited Asset?
Capital gains tax can become relevant when you dispose of an inherited asset.
This might include:
- selling an inherited property
- selling inherited shares
- selling managed fund investments
- disposing of other investments that have increased in value
Importantly, you generally don't pay CGT when you inherit the asset itself.
Instead, the tax consequences generally arise when the asset is later disposed of.
The calculation can be complex because the cost base of an inherited asset isn't necessarily simply what the deceased originally paid for it.
Different rules can apply depending on when the deceased acquired the asset and the nature and use of the asset.
For inherited property, for example, the ATO has specific rules covering properties acquired before and after 20 September 1985 and properties that were the deceased person's main residence.
If you're considering selling an inherited asset, it's worth understanding the CGT consequences before you sell rather than afterwards.
Are Inherited Shares or Investments Taxable?
If you inherit shares or other investments, you generally don't pay tax simply because you received them.
However, there are two potential tax considerations.
1) Income from the investment
If the shares pay dividends after you inherit them, those dividends may be taxable income.
Similarly, interest earned on inherited cash or distributions from investments may be taxable.
2) Capital gains when you sell
If you later sell inherited shares or investments, CGT may apply.
The tax treatment depends on the relevant cost-base rules and the circumstances of the deceased estate.
The ATO confirms that inherited shares and other capital assets are generally not taxed when received, but CGT may apply when they are later disposed of.
Is Inherited Superannuation Taxed?
It can be.
This is one of the most important distinctions to understand because superannuation doesn't always follow the same tax treatment as other inherited assets.
When a person dies, their superannuation may be paid to their beneficiaries as a superannuation death benefit.
Whether tax is payable can depend on:
- who receives the superannuation
- whether they qualify as a dependant under tax law
- whether the super contains taxable or tax-free components
- whether the benefit is paid as a lump sum or income stream
- other circumstances relating to the deceased and beneficiary
For example, a superannuation death benefit paid to a qualifying dependant may receive different tax treatment from a benefit paid to an adult child who is not a dependant for tax purposes.
This is why simply saying “there is no inheritance tax in Australia” doesn't tell the whole story.
If you have a significant superannuation balance and are concerned about what your children or other beneficiaries may receive after your death, superannuation should be considered as part of your broader estate and retirement planning.
What if I Inherit Money or Assets from Overseas?
Receiving an inheritance from overseas can introduce another layer of complexity.
Australia doesn't impose a general inheritance tax simply because you receive an overseas inheritance.
However, the country where the deceased lived or where the asset is located may have its own inheritance, estate or other taxes.
There may also be Australian tax consequences once you receive and own the asset.
For example:
- overseas property may generate taxable rental income
- selling an overseas asset may create Australian CGT consequences
- foreign investments may generate taxable income
- foreign tax may already have been paid in another country
The interaction between Australian tax law and the tax rules of another country can be complicated, particularly where property, investments or substantial estates are involved.
If you're receiving a significant overseas inheritance, professional advice can help you understand both the Australian and international implications.
When can tax apply to an inheritance?
Although there is no inheritance tax in Australia, tax can arise in several situations.
The key takeaway is:
You generally aren't taxed for receiving an inheritance. Tax can arise from the assets you inherit, the income they generate or what you do with them afterwards.
How Can You Minimise Tax on an Inheritance?
Because Australia doesn't have an inheritance tax, the goal isn't really to “minimise inheritance tax”.
Instead, the focus should be on understanding and planning for the tax consequences associated with the assets you're passing on or receiving.
Depending on your circumstances, this may involve considering:
1) Superannuation
Superannuation can require particular attention because death benefit tax can vary significantly depending on who receives the benefit and the composition of the super balance.
2) The ownership of assets
The way assets are owned can affect what happens when someone dies and how they are ultimately transferred to beneficiaries.
3) The timing of asset sales
Selling an inherited property or investment at the wrong time may create unnecessary tax or other financial consequences.
4) Estate planning structures
Depending on your circumstances, structures such as testamentary trusts may form part of an estate plan.
These are legal and tax structures that need to be considered carefully with appropriate professional advice.
5) Your broader financial position
An inheritance can change your financial position significantly.
The best strategy isn't necessarily the one that minimises tax at all costs.
Instead, you should consider how the inheritance fits into your broader goals.
For example, you might use an inheritance to:
- pay down debt
- invest for the long term
- strengthen your retirement position
- help your children
- purchase property
- create greater financial flexibility
- fund travel or other lifestyle goals
Tax is important, but it shouldn't necessarily be the only consideration.
What Should You Do When You Receive an Inheritance?
Receiving an inheritance can be financially significant — and emotionally difficult.
You don't necessarily need to make major decisions immediately.
Before deciding what to do with an inheritance, it can be useful to understand:
What have I actually inherited?
Cash, shares, property, superannuation and other assets can all have different tax and financial implications.
What tax may apply?
Understanding potential CGT, income tax or superannuation tax before making decisions can help you avoid unexpected outcomes.
What do I actually want the money to achieve?
An inheritance can create opportunities that weren't previously available.
It might allow you to reduce debt, retire earlier, invest for the future or give yourself more financial freedom.
Does this change my broader financial plan?
A significant inheritance can change your financial position considerably. Your investment strategy, retirement plans, superannuation and insurance may all need to be reconsidered.
Rather than making decisions based purely on the inheritance itself, it's often better to step back and look at the bigger picture.
Should I get financial advice after receiving an inheritance?
You don't necessarily need financial advice simply because you've received an inheritance.
But if you've inherited a significant amount of money or assets, professional advice can help you understand your options before making decisions that may be difficult to reverse.
At Northeast Wealth, we look at the inheritance as part of your whole financial picture.
That might mean helping you understand:
- what you've inherited
- potential tax considerations
- how the assets fit with your existing wealth
- whether your investment strategy needs to change
- how the inheritance could affect your retirement plans
- whether there are opportunities to reduce debt
- how you could use the money to create more financial flexibility
The goal isn't simply to tell you where to put the money.
It's to help you understand what the inheritance could make possible.
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How Northeast Wealth Can Help
An inheritance can create exciting opportunities, but it can also raise a lot of questions.
- Should I keep the property or sell it?
- Should I invest the money or pay down my mortgage?
- How will this affect my retirement?
- What happens to my children's inheritance?
- Will my superannuation be taxed when I die?
- How can I make the most of what I've received?
These aren't questions that have one-size-fits-all answers.
At Northeast Wealth, we start by understanding where you are, where you'd like to be and what matters to you.
From there, we can help bring the different pieces of your financial life together and provide a clear strategy for what comes next.
Our approach is built around:
Direction — understanding where you're going.
Clarity — making complex financial decisions easier to understand.
Progress — helping you make informed decisions and move towards what matters most.
If
you've recently received an inheritance and aren't sure what to do next, a conversation with a financial planner can help you understand your options.
Frequently Asked Questions about Inheritance Tax in Australia
Is there inheritance tax in Australia?
No. Australia does not currently have a general inheritance tax or estate tax. However, tax may apply to income generated by inherited assets, capital gains when inherited assets are sold, or certain superannuation death benefits.
Do I have to pay tax if I inherit money in Australia?
Generally, no. Inherited money is generally not treated as taxable income when you receive it. However, interest or investment income generated by the inherited money may be taxable.
Do I pay tax if I inherit a house?
Generally, you don't pay tax simply because you inherit a house. However, capital gains tax may apply when you later sell the property, depending on the circumstances. Specific rules apply to inherited property, including whether it was the deceased person's main residence.
Do I pay capital gains tax when I inherit a property?
Generally, no CGT is payable simply when you inherit the property. CGT may become relevant when you later dispose of it. The calculation depends on factors including when the deceased acquired the property, how it was used and the circumstances of the sale.
Is inherited superannuation taxable?
It can be. Superannuation death benefits can have different tax treatment depending on the beneficiary, the taxable and tax-free components of the super and how the benefit is paid.
Do children pay tax on an inheritance?
Children generally don't pay tax simply because they receive an inheritance. However, tax may apply to income generated by inherited assets, capital gains when assets are sold and certain superannuation death benefits.
Is money inherited from overseas taxable in Australia?
There is no general Australian inheritance tax on money received from overseas. However, the country where the deceased lived or where the assets are located may impose its own taxes. Australian tax may also apply to income or gains generated by the inherited assets.
How can I avoid tax on an inheritance in Australia?
There is no inheritance tax to avoid. However, there may be legitimate strategies for managing the tax consequences associated with inherited assets, including CGT, investment income and superannuation death benefits. The appropriate strategy depends on your circumstances.
Should I invest an inheritance?
There isn't one right answer. Depending on your circumstances, you might invest the inheritance, reduce debt, contribute to your retirement strategy, purchase property or use some of the money for lifestyle goals. The right decision depends on your broader financial position and goals.
What should I do with a large inheritance?
Before making major decisions, understand what you've inherited, identify any tax considerations and consider how the inheritance fits into your broader financial plan. A significant inheritance can change your financial position and may justify reviewing your investment, superannuation, retirement and estate planning strategies.
James O’Reilly is the Director of Northeast, a fast-growing financial advice firm that empowers clients to achieve meaningful financial progress and well-being. He's also the co-host of the Australian Retirement Podcast, one of Australia's fastest-growing podcasts.