Australia does not have an inheritance tax, and CGT is generally deferred until an inherited asset is sold.
9 April, 2026
CGT on inheritance explained
First Financial Team
Everyday Australians are burdened with a host of tax obligations from the GST to fuel excise, PAYG, land tax, stamp duty, FBT; the list is long and confusing. It is little wonder that financial advice firms work their strategies around tax minimisation as much as possible. With the sheer number of taxes in our system, it is not surprising that one of the most common misconceptions we hear is that tax is immediately payable when you inherit an asset.
As it currently stands, there is no inheritance tax in Australia. Capital Gains Tax (CGT) does not apply when you inherit an asset. Instead, CGT is generally deferred until a later event, most commonly when the asset is sold.
If you receive an asset as part of an inheritance, understanding when CGT applies and how it is calculated is essential to avoiding unexpected tax liabilities and making informed financial decisions.
“There is no tax when you inherit, but there may be tax when you act.”
When does CGT apply?
The key principle is this: CGT is triggered by a sale, not by inheritance itself.
When an asset passes to you, whether through a will or intestacy, you effectively step into the tax position of the deceased. The transfer is treated as a rollover, meaning any unrealised capital gain is carried forward rather than taxed at death.
CGT will only arise when:
- You sell the inherited asset
- The executor sells the asset during estate administration
- The asset is otherwise disposed of or transferred
If the executor sells the asset before distribution, the estate pays the CGT. If you sell it later, you are responsible for the capital gains tax.
What is the cost base?
One of the most important factors in calculating CGT on an inheritance, namely property or shares, is the “cost base.” This determines how much gain is taxable when the asset is eventually sold.
The rules vary depending on when the deceased originally acquired the asset:
- Pre-20 September 1985 (pre-CGT assets): Use the market value at the date of death as the cost base.
- Post-20 September 1985 assets: Typically, you inherit the deceased’s original cost base, including purchase price and associated costs.
This distinction can significantly affect the final tax outcome, particularly for long-held assets such as property or shares.
The 2 year rule on the family home
One of the more favourable concessions relates to the deceased’s main residence. In many cases, you can sell an inherited home without paying CGT, provided certain conditions are met.
A full exemption may apply if:
- The property was the deceased’s main residence
- It was not used to produce income
- It is sold within two years of death
If these conditions aren’t met, CGT may still apply partially, depending on how the property was used before or after death. Seeking expert advice is highly recommended in this scenario.
What are the common situations where CGT applies on property?
Inheriting property or shares are the most common passed down asset. Capital Gains Tax (CGT) can apply when:
- Selling an inherited investment property. If you inherit a rental property and later sell it, CGT will usually apply. The taxable gain is calculated based on the cost base you inherit and the eventual sale price.
- Delayed sale of the family home. If you retain the family home beyond the two-year exemption period and it is not your main residence, a portion of the capital gain may become taxable.
- Renting the property after inheritance. If you decide to rent out an inherited property, this can reduce or eliminate the main residence exemption and create a partial CGT liability.
- Executor sells the asset. Where the executor sells assets to distribute cash to beneficiaries, the estate itself may incur CGT, which is reported in the estate’s tax return.
- Shares or managed funds. If you inherit shares and sell them later, CGT applies based on the inherited cost base. Any capital gain is included in your assessable income, potentially with a 50% discount if held for more than 12 months.
Not all outcomes are straightforward, partial CGT exemptions apply where:
- The property was partly used to produce income
- The deceased moved out before death
- The beneficiary occupies the property for only part of the ownership period
In these cases, the capital gain is apportioned based on taxable and exempt periods, which can become complex without proper records.
Again, we always recommend seeking professional advice when inheriting a property or shares before committing to a long term strategy.
“CGT is triggered by a sale, not by inheritance itself.”
Timing and strategy will make a difference
One of the most important considerations is timing. Selling within exemption periods, understanding cost base rules, and deciding whether to retain or dispose of an asset can mean the difference between a tax-free outcome and a substantial liability. CGT is not about inheritance itself, it’s about what happens next. Think of this way; There is no tax when I inherit, but there may be tax when I act.
Keeping accurate records, and seeking professional advice will help you make better decisions and ensure that inherited wealth is managed as effectively as possible.
The team at First Financial comprises financial experts who help hundreds of Australians retire well and make informed, intelligent financial decisions. We cover everything from retirement and financial advice, investment and wealth management, superannuation and SMSF, insurance, tax, aged care, legal and lending services. Contact us for holistic, well-rounded financial management strategies.
Key Takeaways
The cost base of an inherited asset depends on when it was originally acquired, which can significantly impact the final tax outcome.
A full CGT exemption may apply to an inherited family home if specific conditions, including the two-year rule, are met.
Timing, record keeping, and professional advice are critical to minimising tax and making informed decisions about inherited assets.
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FAQs
What happens to tax when you inherit an asset in Australia?
There is no inheritance tax in Australia, and CGT does not apply when you receive an asset. Instead, any potential tax is generally deferred until a later event such as a sale.
When does Capital Gains Tax apply to inherited assets?
CGT is triggered when the asset is sold, not when it is inherited. It may apply if you sell the asset, or if the executor sells it during estate administration.
Who pays CGT on an inherited asset?
If the executor sells the asset before distribution, the estate pays the CGT. If you sell the asset later, you are responsible for any capital gains tax.
How is the cost base of an inherited asset calculated?
The cost base depends on when the deceased acquired the asset. For older assets (pre-1985), market value at death is used, while newer assets generally retain the original purchase cost.
Is there a CGT exemption for inherited family homes?
Yes, a full exemption may apply if the home was the deceased’s main residence, wasn’t income-producing, and is sold within two years. If these conditions aren’t met, partial CGT may apply.
When might CGT apply to inherited property?
CGT can apply if you sell an inherited investment property, rent out the home, or hold it beyond the two-year exemption period. The final tax outcome depends on how the property is used and when it is sold.
How can First Financial help with inherited assets and CGT?
First Financial can help you understand CGT implications and develop strategies to minimise tax liabilities. Their advice ensures you make informed decisions about whether to hold or sell inherited assets.
Why should you seek advice from First Financial when managing an inheritance?
Inherited assets often involve complex tax rules and timing considerations. First Financial provides holistic financial guidance to help you manage wealth effectively and avoid costly mistakes.