Deceased Estate Capital Gains Tax in Australia FY 2025-26: What You Need to Know
Updated for FY 2025-26 · 6 min read
Quick Answer
When someone passes away, there is no immediate CGT on assets passed to beneficiaries — this is called the CGT death rollover. Beneficiaries inherit the deceased's original cost base (for pre-CGT assets: the market value at date of death). CGT only applies when the beneficiary later sells the inherited asset. The main residence exemption continues for up to 2 years after death if the property is sold by the estate.
Understanding capital gains tax (CGT) on deceased estates is crucial for executors, beneficiaries, and anyone managing the affairs of a loved one who has passed away. Australia has specific rules that determine when CGT applies, what cost base beneficiaries inherit, and what exemptions are available. This guide covers everything you need to know about deceased estate CGT for FY 2025-26.
The CGT Death Rollover: Assets Pass Tax-Free at Death
The cornerstone rule is that no CGT event occurs when assets pass from a deceased person to their beneficiaries. This is known as the "death rollover" (CGT Event D1 does not apply). Instead, the beneficiary is treated as having acquired the asset at the time of the deceased's death. This means the estate does not need to pay CGT simply because ownership transfers.
However, there are two different cost base scenarios depending on when the deceased originally acquired the asset. The distinction matters greatly for calculating any eventual CGT liability.
| When the Deceased Acquired the Asset | Cost Base for the Beneficiary | CGT Applies When Beneficiary Sells? |
|---|---|---|
| Pre-20 September 1985 (pre-CGT) | Market value at date of death | Yes — CGT applies to gain above date-of-death value |
| Post-19 September 1985 (post-CGT) | Same cost base as the deceased had | Yes — CGT applies to gain since original acquisition |
Inherited Property and the Main Residence Exemption
The family home is the most common asset passed through a deceased estate. The main residence exemption provides significant CGT relief. If the deceased used the property as their main residence and it was not used to produce income, the property is fully exempt from CGT if sold by the estate within 2 years of death.
If the estate sells the property more than 2 years after the date of death, CGT may apply. However, the ATO has discretion to extend this period in certain circumstances, such as when:
- The beneficiary was legally required to live in the home (e.g., under the will or trust deed)
- The property was the beneficiary's main residence since the deceased's death
- There was a dispute over the estate that delayed the sale
If the deceased used the property as a rental property (e.g., they moved into aged care and rented it out), the main residence exemption is lost from the date it was first used to produce income. The estate or beneficiary may owe CGT on the proportion of gain that accrued after that date.
CGT on Inherited Shares and Investments
Shares and managed funds are common inherited assets. Their CGT treatment depends on when the deceased acquired them. For shares acquired after 19 September 1985, the beneficiary inherits the deceased's original cost base. This means if the deceased bought shares for $10,000 and they were worth $50,000 at the date of death, the beneficiary's cost base is $10,000 — and a $40,000 capital gain will arise if they later sell for $50,000.
For shares acquired before 20 September 1985 (pre-CGT), the beneficiary's cost base is the market value at the date of death. Any gain from that date onwards is subject to CGT when the beneficiary sells. This is more favourable as the pre-CGT period is essentially "forgiven."
The 50% CGT Discount for Beneficiaries
Beneficiaries who inherit post-CGT assets can claim the 50% CGT discount when they sell, provided they have held the asset for at least 12 months including the time the deceased held it. For inherited assets, the holding period starts from when the deceased acquired the asset, not from the date of death. This is a significant benefit.
| Scenario | Holding Period (for discount) | CGT Discount Available? |
|---|---|---|
| Deceased held shares for 10 years; beneficiary sells 1 month after death | 10 years + 1 month | Yes — 50% discount applies |
| Deceased held shares for 6 months before death; beneficiary sells 8 months after | 14 months | Yes — 50% discount applies |
| Deceased held shares for 3 months; beneficiary sells 5 months after death | 8 months | No — must hold 12+ months total |
The Estate as a Taxpayer: When the Estate Pays CGT
If the executor sells assets within the estate (before distributing to beneficiaries), the estate itself may be liable for CGT. The estate is treated as a separate taxpayer and uses normal tax rates — but with higher thresholds. For FY 2025-26, the estate pays:
| Estate Taxable Income | Tax Rate |
|---|---|
| $0 – $18,200 | 0% |
| $18,201 – $45,000 | 16% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
| Note: Estates are not eligible for the tax-free threshold if they are deemed "unlisted trust estates" — but most deceased estates retain the standard resident thresholds during the administration period. | |
Importantly, the estate can also claim the 50% CGT discount if it held the asset (including the deceased's holding period) for at least 12 months. The estate also pays the 2% Medicare Levy on taxable income (if the income exceeds the Medicare levy thresholds).
Real Examples: Deceased Estate CGT Scenarios
Example 1: Family Home Sold Within 2 Years
John passes away, leaving his family home (acquired in 1995) to his daughter Sarah. The home is worth $800,000 at date of death. Sarah sells it 14 months later for $850,000. Result: No CGT. The main residence exemption applies because the property was John's main residence and was sold within 2 years of death.
Example 2: Inherited Shares Sold After 5 Years
Mary acquired BHP shares in 2010 for $20,000. She passes away in 2025 when they are worth $60,000. Her son Ben inherits them and sells in 2029 for $75,000. Ben's cost base is $20,000 (Mary's original cost). His capital gain is $55,000. He held for more than 12 months total (2010–2029), so the 50% CGT discount applies. Net taxable gain: $27,500.
Example 3: Pre-CGT Property Sold by Estate
A rental property acquired in 1980 (pre-CGT) passes to the estate. The executor sells it for $1,200,000. Since the asset was acquired before CGT existed (pre-20 September 1985), the cost base is reset to the market value at date of death, say $900,000. CGT applies only to the $300,000 gain after death. The 50% CGT discount applies (the estate held it for >12 months), resulting in a net taxable gain of $150,000.
Key Deadlines and Reporting Requirements
The executor must lodge a tax return for the deceased person for the period from 1 July to the date of death. Any income earned by the estate during administration (including interest, dividends, and rental income) must be declared in an estate tax return. CGT events triggered by the estate (e.g., selling assets before distribution) must be reported in the estate's tax return for the year the sale occurred.
Beneficiaries who inherit assets do not report anything until they sell the asset themselves. At that point, they calculate the capital gain (or loss) using the cost base rules above and report it in their annual tax return. The net capital gain is included in their assessable income and taxed at their marginal rate (minus any applicable CGT discount).
Use the Take-Home Pay Calculator to understand how CGT from an inherited asset might affect your overall tax position. You can also check the Income Tax Calculator for the full rate breakdown and see how the Superannuation Calculator handles death benefit super payments.
Frequently Asked Questions
Do I pay capital gains tax when I inherit property in Australia?
No. There is no CGT at the time you inherit the property. The CGT death rollover means the transfer to you is not a CGT event. You only pay CGT when you later sell the property, and the gain is calculated based on when the deceased originally acquired it (or its date-of-death value if acquired pre-CGT).
How long do I have to sell an inherited house without paying CGT?
If the deceased used the property as their main residence and it was not used to produce income, the estate or beneficiary has 2 years from the date of death to sell it without incurring CGT. The ATO can extend this period in exceptional circumstances, such as disputes over the will or delays in obtaining probate.
Can I claim the 50% CGT discount on inherited assets?
Yes, provided the combined holding period (the time the deceased owned the asset plus the time you have owned it) is at least 12 months. The deceased's holding period is included when calculating your ownership period for the 50% CGT discount. This applies to both individual beneficiaries and the estate.
What happens if the estate sells assets at a loss?
If the estate sells an inherited asset at a capital loss, the loss can only be used to offset capital gains within the estate. It cannot be distributed to beneficiaries as a deduction. Capital losses in a deceased estate cannot be carried forward if the estate is wound up in the same year. Beneficiaries cannot inherit capital losses.
Is there a difference in CGT treatment for assets left to a spouse?
Yes. If assets pass to a surviving spouse (or certain other beneficiaries like a family member living in the home), the main residence exemption continues indefinitely if the spouse continues using the home as their main residence. This is more generous than the 2-year rule that applies when assets pass to non-spouse beneficiaries or if the spouse later sells the property.