Capital Gains Tax on Inherited Property

Australia abolished death duties decades ago. Inheriting a property is not itself a taxable event and no tax falls due because someone died.

What happens instead is that the capital gains tax position rolls over to you. The gain does not disappear; it waits. When you eventually sell, the tax is worked out against a cost base that was set by the deceased's circumstances rather than by anything you did.

So the question is never whether you pay tax on inheriting. It is what your cost base is, and whether an exemption covers the period before you sell.

There are two possible starting points and the difference between them can be very large.

If the deceased acquired the property before 20 September 1985, which is the date capital gains tax began, the first element of your cost base is the market value of the property on the day they died. Decades of growth before that date simply do not enter the calculation.

Market value at the date of death also applies where the dwelling passes to you after 20 August 1996 other than as a joint tenant, it was the deceased's main residence immediately before they died, and it was not being used to produce income at that time.

Outside those cases you inherit the deceased's cost base: what they paid, plus their buying costs and capital improvements, less any capital works deductions they claimed. That last part catches people out, because a property that was rented for years arrives with a cost base already reduced by the depreciation the deceased claimed.

Get a dated market valuation at the date of death where the rules point to one. Reconstructing it years later is difficult, expensive and easy for the ATO to question.

Where the property was the deceased's main residence immediately before death and was not being used to produce income at that time, you can generally disregard the capital gain entirely if you dispose of your interest within two years of the death.

Two years runs from the date of death, and the disposal is dated by the contract, not by settlement. That is a real trap on a deceased estate, because probate and a family agreement can eat a year before the property is even listed.

The Commissioner has a discretion to extend the two years in limited circumstances, such as a will being disputed or probate being delayed beyond the executor's control. It is a discretion, not an entitlement, and it is not something to plan around.

Past two years, the exemption is apportioned. You end up with a partial exemption based on the periods the dwelling was and was not a main residence, and the gain from the date of death onward generally becomes assessable.

If the property was already an investment when the deceased owned it, the two-year rule does not rescue you, because the dwelling was producing income at the date of death.

If you inherit an Australian residential property from someone who had been a foreign resident for more than six years at the time of their death, the main residence exemption they had accrued is not available to you at all.

That is a complete loss of the exemption rather than a reduction of it, and it applies to the beneficiary regardless of the beneficiary's own residency.

It matters more than it used to, because it is now common for a parent to retire overseas. A home that would have passed exempt if they had died in Australia can arrive fully taxable.

If the deceased lived abroad, this is the first thing to establish, before anyone makes a decision about whether to keep or sell.

Where you keep an inherited property and rent it out, it becomes an investment property like any other. Rent is assessable, holding costs are deductible, and capital works deductions you claim reduce the cost base further.

The date you are treated as acquiring it, for the twelve-month holding period that earns the CGT discount, is the date of death rather than the date the estate is administered or the title is transferred. Executors' delays do not cost you the discount.

One change is now on the horizon. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 replaces the 50% discount, for individuals, trusts and partnerships, with cost base indexation and a minimum 30% tax rate on real gains accruing from 1 July 2027. It turns on when the gain accrues, not when you sell, so an inherited property held across that date has a gain in two parts.

That gives an inherited property held as an investment a longer planning horizon than it used to have, and it is worth raising with your accountant while the estate is still being administered rather than years later.