There’s No Inheritance Tax in Australia – But That Doesn’t Mean Inherited Assets Are Tax Free

Written By Jason Goode | Farrell Goode Solicitors

One of the most common misconceptions we encounter when helping families through deceased estates is the belief that inheritance is simply tax free in Australia. Whilst it is true there is no ‘inheritance tax’ in Australia, that doesn’t mean you receive inherited money tax free.

Depending on what you inherit, how it comes to you, and what you do next, there are some hidden taxes that can catch you out. The good news is, when you get your structure right and plan smartly around an inheritance, you’ll keep more of it working for your future.

This guide explains what Australian families and estate beneficiaries actually need to know about tax and inheritance – in plain language.

The Basics: Not All Inherited Assets Are Equal

There’s no blanket rule on the inheritance tax that may apply when you receive an inheritance.

A useful starting point is to classify what you have received into one of four categories:

• Cash
• The family home
• Investments – shares, managed funds, or investment property
• Superannuation

Each category comes with its own tax treatment, its own timing considerations, and its own planning opportunities. Getting clarity on what you have inherited before you do anything else is essential.

Tip: when you inherit, make a clear list and title each as cash, family home, super or investments. Your tax playbook will change based on the category, so you need clarity before you move forward.

Cash: Simple, But Not Without Consequences

Cash is the most straightforward asset to inherit. There is no tax payable at the point of receiving a cash inheritance. The full amount is simply transferred to your bank account or paid from the estate. However, from the moment that cash is in your hands, any interest income you earn on it is taxed at your marginal income tax rate. This can be as high as 47 per cent for higher earners.

This is not unique to inherited money – it is simply how interest income is taxed in Australia

The Family Home: Usually Straightforward, With an Important Time Limit

Inheriting the family home, the property that was the deceased’s main residence, is generally the most tax-friendly asset you can receive. If the property has been the main residence of someone who’s passed away, and you sell that property within two years of the date of death, a full capital gains exemption will commonly apply.

If you don’t sell the property within that two year window, or you don’t move into the property yourself, when the property is sold you typically pay capital gains tax on any increase in the value of the property from the date of death.

Tip: if you inherit the family home, get a valuation at the date of death. This will help with your paperwork (and planning) later.

Shares, Funds and Investment Property: You Inherit the Tax History Too

Assets like property, shares, and super are different, and can have much larger tax consequences attached.

When you inherit investments or an investment property, you also inherit their tax history. In other words, if you inherit these sorts of assets, you also inherit their cost base.

The choices you make about holding assets, selling, or restructuring is what will decide the size of your tax bill. When the investments are sold in the future, your capital gain is calculated as the sale price less the original purchase price – not necessarily the value at the time you inherited the assets.

This means you can inherit a serious tax bill.

A practical example: you inherit shares from your parents that they originally paid $50,000 for. At the time you inherit the assets, they’re worth $150,000, and you later sell them for $250,000.

Based on this example, the capital gain is $200,000, not the $100,000 increase since you inherited.

This tax can be particularly high on investment properties that could be sitting on hundreds of thousands of dollars of gains.

Investment properties with large embedded gains

Where inherited investments carry significant embedded capital gains, the decision to sell requires careful consideration. An immediate disposal may trigger a substantial tax liability, while the asset itself continues to generate income or grow in value. For investment properties in particular, another path worth exploring is retaining the property and borrowing against its equity to fund further investment, rather than liquidating, paying a large tax bill, and having to rebuild your position from scratch.

The Pre-CGT asset exception: One less common exception to this rule is for ‘pre-CGT’ assets that were purchased before capital gains tax was introduced in September 1985. For any investments you inherit that were purchased prior to the introduction of CGT, the cost base will typically reset at the date of death.

Superannuation: the hidden death tax

When super money is paid to a dependent like a partner or minor children, this money is typically received tax free. However, super paid to a ‘non-tax dependent’ like an adult child is typically taxed at 17 per cent. Similarly, tax on life insurance which is inherited by an adult child is 32%.

The withdrawal and recontribution strategy

Some of this tax can be fully eliminated with some smart planning, and the use of a ‘withdrawal and recontribution’ superannuation strategy.

This strategy allows you to withdraw money from the taxable component of your super account, and then recontribute the money to super into the ‘tax-free’ component – meaning that if the funds are then received by non-dependent beneficiaries, the super death tax is zero.

This strategy requires careful planning. It must be considered alongside contribution caps, the individual’s age and eligibility to contribute, and the broader financial plan. But given the tax that can be saved on large superannuation balances, it is one of the most valuable estate planning tools available for families with adult children.

Sequencing your sales matters: If you inherit multiple investments, the order you sell them in will make a big difference. Capital losses offset gains, holding assets for 12 months will generally qualify for a 50 per cent CGT discount at present, and the timing of contracts of sale will dictate the tax outcomes.

Deferring sales, managing sales across multiple tax years, or pairing gains with losses can significantly change how much you receive without changing the headline sale price.

Getting the Structure Right Before and After Inheritance

Keeping more of an inheritance isn’t about clever tricks you put in place after the fact. It’s about knowing which assets come with which tax implications, and how the right timing, paperwork, and strategy shift your results.

The rules are specific and the dollars are serious. Invest some time and money in getting your strategy right, and consider getting professional advice. Getting the right advice early is almost always less costly than managing the consequences of a wrong decision.

With the right planning and advice, an inheritance can fulfil its purpose – to provide genuine and lasting benefit to the people the deceased cared most about.

Not sure how your estate is structured? If this article has raised questions about your Will, your superannuation nominations, or how your assets will be treated on death, now is the right time to get answers. Book a consultation with the Farrell Goode team today.