CGT on Inherited Property and Deceased Estates

Australia has no inheritance tax or death duties, so inheriting an asset does not by itself create a tax bill.

Death is generally not a CGT event either. Under Division 128 of the Income Tax Assessment Act 1997, a capital gain or loss on an asset that was owned by the deceased just before they died and passes to their legal personal representative and then to a beneficiary is disregarded.

CGT can arise later, when the estate or the beneficiary sells or otherwise disposes of the asset, unless an exemption applies.

What can later be taxed depends on the cost base inherited, which turns on when the deceased acquired the asset. The ATO sets out the rules on its page How CGT applies to inherited assets.

If the deceased acquired the asset before 20 September 1985 (a pre-CGT asset), the first element of the cost base is the market value of the asset on the day the deceased died.

If the deceased acquired it on or after 20 September 1985 (a post-CGT asset), the first element is generally the deceased's own cost base on the day they died. There is one important exception for a dwelling: the cost base is the market value at the date of death where the dwelling passed to the beneficiary after 20 August 1996, not as a joint tenant, and just before the deceased died it was their main residence and was not being used to produce income.

The beneficiary can include in the cost base certain costs that the legal personal representative incurred, such as conveyancing on transferring the asset and costs incurred to confirm the validity of the will.

For the CGT discount, an inherited asset is treated as owned since the deceased acquired it if that was on or after 20 September 1985, or since the date of death if the deceased acquired it before then.

This means the 12-month holding period for the discount is generally met. From 1 July 2027 the discount itself changes for individuals, trusts and partnerships, as covered below.

An inherited property that includes a dwelling, sold together with its land, can be fully exempt from CGT if the disposal occurs under a contract that settles within two years of the deceased's death, and either the deceased acquired the property before 20 September 1985, or just before the deceased died the property was their main residence and was not being used to produce income. The ATO sets out the conditions on its page Inherited property and CGT.

During that two-year window it does not matter whether the beneficiary lived in the property or rented it out.

If the deceased died before 20 September 1985, the property is generally fully exempt regardless, although major improvements made on or after that date can be subject to CGT.

The two-year period can be extended where disposal is delayed by exceptional circumstances outside the beneficiary's control. Under Practical Compliance Guideline PCG 2019/5 an extension of up to 18 months is granted automatically if a set of conditions is met, for example where ownership of the property or the will is challenged, where a life interest or the complexity of the estate delays administration, where the property was listed for sale as soon as practicable, and where the sale settled within 12 months of listing.

If those conditions are not met, an extension can be requested from the Commissioner, who grants one only in exceptional circumstances outside the beneficiary's control.

A separate path to a full exemption applies where, from the deceased's death until disposal, the property was not used to produce income and was the main residence of an eligible person: the spouse of the deceased immediately before death who was not permanently separated, a person with a right to occupy the property under the deceased's will, or a beneficiary disposing of it as a beneficiary.

A property counts as a person's main residence from the time they acquire it if they move in as soon as practicable.

If the deceased was not living in the property when they died but had chosen to keep treating it as their main residence under the absence rule, that choice carries over. The property can be treated as the deceased's main residence for the period after they stopped living in it, indefinitely if it was not producing income, or until death or up to six years if it was rented, which can give the beneficiary a full exemption for the deceased's ownership period.

The absence rule is explained in the CGT six-year rule guide.

If neither path gives a full exemption, a partial exemption may still apply. The taxable portion of the capital gain is the gain multiplied by the number of non-main-residence days divided by the total days.

Non-main-residence days are the days from the deceased's death until settlement when the property was not the main residence of an eligible person, plus the days during the deceased's ownership when it was not their main residence.

The days during the deceased's ownership are left out where the deceased acquired the property before 20 September 1985, or where the property passed to the beneficiary after 20 August 1996 and just before death it was the deceased's main residence and not producing income.

A further adjustment applies if part of the home was rented out or used in business. Where the deceased also inherited the property, the main residence periods of the earlier owners are taken into account.

If the deceased had been a foreign resident for more than six years at the time of their death, the main residence exemption is not available for the period they owned the property.

If the beneficiary has been a foreign resident for more than six years when selling, the exemption is not available for their period either. If the beneficiary has been a foreign resident for six years or less, the life events test must be satisfied to claim the exemption.

Where an inherited asset passes to a foreign resident, a tax-exempt entity such as a charity, or a complying super fund, CGT applies to the deceased at the date of death and is reported in the deceased's date-of-death tax return.

How a co-owner's share passes depends on the arrangement. Tenants in common each own a separate share that becomes an asset of their deceased estate and passes under their will. Joint tenants have a right of survivorship, and for CGT the deceased's interest is treated as passing in equal shares to the surviving joint tenants, who may be entitled to the main residence exemption on the interest they acquire.

Any unapplied net capital losses the deceased had do not transfer to the estate or the beneficiary.

The ATO's own CGT calculator and record-keeping tool cannot be used for inherited assets, so the calculation is worked out separately.

The rules above are current law and are not changed by the 2026 reform, and the main residence exemption is expressly retained.

The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026, royal assent 26 June 2026) replaces the 50% CGT discount with cost base indexation and the higher of the marginal rate or 30% for individuals, trusts and partnerships from 1 July 2027, with a deemed disposal and reacquisition at market value at 1 July 2027. A Bills Digest is available from the Parliamentary Library.

Where an inherited property produces a taxable gain, for example a rental property, a sale beyond two years without the occupation path, or a partial exemption case, a sale on or after 1 July 2027 is treated like any other asset for that taxable slice: the old rules apply to the gain accrued up to 1 July 2027 and the new rules apply after.

The detail of how the new regime applies to deceased estates is still being finalised. Treasury released exposure draft legislation (the Tranche 2 package, Treasury Laws Amendment (Tax Reform No. 3) Bill 2026), with consultation closed on 21 August 2026, proposing to keep current treatment for certain transfers on death or relationship breakdown and to exclude the capital gains of certain testamentary trusts, deceased estates and special disability trusts from the 30% minimum tax. Those measures are draft and may change before they become law.

Anyone dealing with a deceased estate that may hold assets past 1 July 2027 can confirm the current position with the ATO and Treasury.

Example only. A person inherits their late parent's home, which was the parent's main residence and not rented out at the date of death. If the home is sold under a contract that settles within two years of death, the gain is generally fully exempt, whatever the home is used for in the meantime.

If instead it is rented out and sold four years after death with no extension, part of the gain is taxable. The cost base is generally the market value at the date of death, and the taxable portion is worked out using the non-main-residence days over the total days.

To estimate the tax on a taxable portion once the cost base and dates are known, including a sale that straddles 1 July 2027, use the CGT Calculator. The inherited-property apportionment itself follows the ATO method, since the ATO's own calculator does not cover inherited assets.

Is there a tax just for inheriting property in Australia?

No. There is no inheritance tax or death duties, and death is generally not a CGT event. CGT can apply later when the property is sold.

What is the two-year rule?

If the property was the deceased's main residence and not income-producing just before death, or was acquired before 20 September 1985, a sale that settles within two years of death can be fully exempt.

Can the two years be extended?

Yes, by up to 18 months automatically under PCG 2019/5 where the conditions are met, or by request to the Commissioner in exceptional circumstances outside the beneficiary's control.

What cost base is inherited?

Market value at the date of death for a pre-CGT asset or a qualifying main residence; otherwise generally the deceased's own cost base on the day they died.

Did the 2027 reform change the inheritance rules?

The main residence exemption and the deceased-estate rules are unchanged. The reform only affects a taxable gain, for sales on or after 1 July 2027, and the detail for deceased estates is still in draft.

Can a calculator be used for an inherited property?

The inherited-property apportionment follows the ATO method; once the cost base and dates are known, the CGT Calculator can estimate the tax on the taxable portion.