Published: 4 April 2026

Tax on Inheritance Australia: What You Need to Know for FY 2025-26

If you've recently lost a loved one or are planning your estate, understanding the tax on inheritance in Australia is essential. The good news is that Australia does not have a federal inheritance tax, which means beneficiaries do not pay tax simply for receiving money, property, or assets from a deceased estate. However, that doesn't mean taxes never apply. Depending on the type of assets inherited, how they are handled, and your personal circumstances, you may still face tax obligations through Capital Gains Tax, estate income tax, or superannuation death benefit taxes.

This comprehensive guide explains exactly how tax on inheritance works in Australia for the 2025-26 financial year, including what is and isn't taxed, how the Australian Taxation Office (ATO) treats deceased estates, and what steps you can take to protect your inheritance.

Does Australia Have an Inheritance Tax?

No, Australia does not have a federal inheritance tax or estate tax. In 1979, the federal government abolished death duties, making Australia one of the few developed countries where beneficiaries can inherit wealth without paying a specific tax on the transfer itself. Whether you inherit $5,000 in cash, a family home, or a share portfolio, there is no tax bill simply for receiving the inheritance.

However, this exemption only applies to the act of inheriting. Once you take ownership of the inherited assets, any income they generate or profit you make from selling them may be taxable. If you sell an inherited investment property, Capital Gains Tax (CGT) may apply. If the estate earns rental income or dividends during administration, that income is taxable too. Understanding these downstream tax consequences is key to managing your inheritance wisely.

How Tax on Inheritance Works in Australia

When someone passes away, their assets form a "deceased estate" — a temporary legal entity managed by an executor or administrator until all debts are paid and assets are distributed. During this administration period, the estate may earn income and may also sell assets to pay debts or make distributions. Both income and capital gains during this period can attract tax.

The ATO treats deceased estates as separate taxpayers for up to three years, applying special concessional tax rates that are generally more favourable than individual marginal rates. After three years, any remaining income is taxed at the highest marginal rate of 45%, creating a strong incentive to finalise estates promptly. You can use our income tax rates calculator to see how these rates compare to personal tax brackets.

For beneficiaries, the most common tax touchpoints are: receiving income distributions from the estate (taxed as personal income), selling inherited capital assets like property or shares (subject to CGT), and receiving superannuation death benefits (tax-free for dependants, but potentially taxed for non-dependants).

Deceased Estate Income Tax Rates for FY 2025-26

During the administration of a deceased estate, any income retained by the estate is taxed at special deceased estate rates for the first three income years. These rates include a tax-free threshold and progressive brackets, similar to individual tax rates but without the Medicare levy. If income is distributed to beneficiaries instead of being retained, the beneficiaries pay tax at their own marginal rates.

Tax rates are subject to change. Always verify with ATO.gov.au.

After the third year of administration, income retained by the estate is taxed at 45% plus the 2% Medicare levy (47% total). This makes it generally more tax-effective to distribute income to beneficiaries in lower tax brackets rather than leaving it in the estate.

Capital Gains Tax on Inherited Assets

Capital Gains Tax is the most significant tax consideration for many beneficiaries. While inheriting an asset is not a CGT event, selling it later can trigger a tax liability. The way CGT is calculated depends on what the asset is, when the deceased acquired it, and whether it was their main residence.

For assets acquired by the deceased after 20 September 1985, you generally inherit their original cost base. This means your capital gain is calculated using what they paid for the asset, plus eligible costs like stamp duty, legal fees, and improvements. If you hold the asset for more than 12 months from the date of death, you qualify for the 50% CGT discount. Our take-home pay calculator can help you understand how a capital gain might affect your overall tax position.

The family home usually receives favourable treatment. If you inherit a property that was the deceased's main residence and you sell it within two years of their death, the sale is typically fully exempt from CGT — even if you rented it out during that time. If you sell after two years, CGT may apply based on the market value at the date of death.

Tax on Superannuation Death Benefits

Superannuation is treated separately from the rest of the estate and does not automatically form part of the deceased estate. Instead, the super fund trustee pays death benefits directly to nominated beneficiaries. The tax treatment depends on who receives them and whether they are classified as dependants under tax law.

Tax dependants — including spouses, children under 18, and anyone financially dependent on the deceased — generally receive super death benefits completely tax-free. However, non-dependants (such as adult independent children) may face tax of up to 17% on the taxable component of a lump sum payment. The tax-free component is not taxed regardless of who receives it. You can learn more about how super works in our guide to superannuation contributions.

Frequently Asked Questions

Do I pay tax on money inherited from my parents in Australia?

No. There is no inheritance tax in Australia, so you do not pay tax simply for receiving cash, property, or other assets from your parents' estate. However, if you later earn income from those assets or sell them at a profit, tax may apply.

How much can you inherit without paying taxes in Australia?

There is no limit. Australia abolished federal inheritance taxes in 1979, so you can inherit any amount without paying tax on the inheritance itself. Taxes only apply to income generated by the estate or capital gains from selling inherited assets.

Is there Capital Gains Tax on inherited property in Australia?

Not when you inherit it, but possibly when you sell it. If the property was the deceased's main residence and you sell within two years of their death, it's usually CGT-exempt. Investment properties and sales after two years may attract CGT.

Do beneficiaries pay tax on superannuation death benefits?

Tax dependants (spouses, children under 18, financial dependants) receive super death benefits tax-free. Non-dependants may pay up to 17% tax on the taxable component of a lump sum. The tax-free component is never taxed.

What happens if a deceased estate earns income?

The estate must lodge tax returns and pay tax on income earned during administration. For the first three years, special concessional tax rates apply. After three years, retained income is taxed at the highest marginal rate of 45%.

Conclusion

Understanding the tax on inheritance in Australia helps you navigate what can be an emotionally challenging time with greater confidence. While Australia does not impose a federal inheritance tax, taxes can still affect deceased estates and beneficiaries through income tax on estate earnings, Capital Gains Tax on sold assets, and superannuation death benefit taxes for non-dependants.

For the 2025-26 financial year, remember: deceased estates enjoy concessional tax rates for the first three years of administration; inherited main residences are typically CGT-free if sold within two years of death; and superannuation paid to tax dependants is generally tax-free. Every estate is different, and the rules can become complex quickly — especially for large estates or blended families.

Whether you're managing a deceased estate as an executor or receiving an inheritance as a beneficiary, seeking professional advice from a registered tax agent or estate lawyer is highly recommended. To explore how inheritance-related income might affect your personal tax situation, try our calculate your take-home pay tool or browse our full range of Australian tax calculators.