Inheritance Tax Australia: Does It Exist and What You Actually Pay
There is no inheritance tax Australia residents have to pay: the ATO confirms there are no inheritance or estate taxes here. But that doesn't mean inheriting is always tax-free. Selling an inherited asset later can trigger capital gains tax, and some superannuation death benefits are taxed.
Inheritance Tax Australia: Does It Exist?
No. Inheritance tax Australia residents might expect from overseas news simply does not apply here: there is no formal inheritance or estate tax.
According to the Australian Taxation Office, "there are no inheritance or estate taxes in Australia." You don't pay tax simply for receiving money, property or other assets from someone's estate. This makes inheritance tax Australia-style different from countries such as the UK or the US, which do apply a dedicated inheritance or estate tax above certain thresholds.
Is Inherited Money Taxed as Income?
The inheritance itself is not taxed as income, but income it later produces is.
A lump sum or asset you inherit is not added to your taxable income. However, if you become presently entitled to income from the deceased estate, such as rent, dividends or trust distributions, that income must be declared on your own tax return in the ordinary way once you receive or become entitled to it.
Do You Pay Capital Gains Tax When You Inherit a House or Shares?
Not at the moment you inherit, but capital gains tax may apply if you later sell the asset.
The ATO says capital gains tax (CGT) "may apply if you dispose of an asset inherited from a deceased estate." CGT is triggered by the disposal (the sale), not by the act of inheriting. Because the rules for working out the asset's cost base, and any main residence exemption for an inherited home, depend on details like when the deceased bought the asset and how it was used, it's worth getting specific advice before you sell.
If you've inherited property, shares or other assets and aren't sure where you stand, Tax Falcon can help you work out what tax, if any, applies when you sell.
Are Superannuation Death Benefits Taxed?
Yes, superannuation death benefits can be taxed, and the amount depends on who receives them.
The ATO lists several factors that determine how a super death benefit is taxed: whether you were a tax dependant of the deceased, whether the benefit is paid as a lump sum or an income stream, whether the super is a tax-free or taxable component, and the ages of both you and the deceased for an income stream. Because this varies case by case, the ATO recommends contacting the super fund's trustee to confirm exactly how much tax, if any, applies to your benefit.
Do You Need to Declare an Inheritance on Your Tax Return?
You don't declare the inheritance amount itself, but you do need to declare any income it later generates.
Because there is no inheritance tax, you won't see a line on your tax return for money or property you've inherited. What you do need to declare is any rent, dividends, interest or capital gain that the inherited asset produces once it's yours, along with any taxable portion of a superannuation death benefit.
What About Money Inherited From Overseas?
Because there's no inheritance tax Australia imposes on local estates, receiving a cash inheritance from a relative who died overseas generally isn't taxed here either, as it's still treated as a gift or bequest rather than income. The main things to watch are whether the overseas country itself applies its own inheritance or estate tax before the funds reach you, and whether transferring a larger sum into an Australian bank account triggers reporting obligations for the bank rather than for you personally.
If you've inherited assets located overseas, such as foreign property or shares, those can still have Australian tax consequences once you sell them, so it's worth checking with Tax Falcon before you dispose of anything.
Frequently Asked Questions
Does Australia have an inheritance tax?
No. The ATO confirms there are no inheritance or estate taxes in Australia, so you don't pay tax simply for receiving an inheritance.
Is inherited money taxed as income in Australia?
No, the inheritance itself isn't taxed as income. However, any income the inherited asset produces afterwards, such as rent or dividends, must be declared as usual.
Do you pay capital gains tax on an inherited house?
Not when you inherit it, but capital gains tax may apply if you later sell the property, depending on how the cost base and any main residence exemption apply.
Are superannuation death benefits taxed in Australia?
They can be. The tax depends on factors including whether you were a tax dependant of the deceased and whether the benefit is a lump sum or an income stream.
Do you need to declare an inheritance on your tax return?
You don't declare the inheritance amount itself, but you must declare any income the inherited asset later produces, such as rent, dividends or a capital gain on sale.
Inherited an asset and not sure what to declare? Start your tax return with Tax Falcon and we'll help you get it right.
