Received an Inheritance? Tax Tips You Need to Know

Receiving an inheritance can be both emotionally and financially overwhelming. Whether it’s money, property, or shares, understanding what to do next – and how it affects your tax obligations – is essential.

So, do you pay tax on inheritances in Australia? The short answer is: no, not directly. But that doesn’t mean you can ignore tax altogether. Here’s what you need to know when you inherit and how to handle your responsibilities at tax time.

First Things First: What Should You Do When You Inherit?

When you receive an inheritance, take the following steps:

1. Understand What You’ve Inherited
   It could be cash, shares, property, superannuation, or other assets. Each has different tax implications.
2. Wait for the Estate to Be Finalised
   The executor or legal personal representative (LPR) will manage the estate and distribute the assets. Don’t make decisions until this process is complete.
3. Gather Key Documents
   Ask the executor for:
   • A valuation of any property or shares as at the date of death
   • Documentation showing how the assets were acquired and any associated costs
   • Details about income earned after you inherit
4. Speak With a Tax Advisor
   Tax treatment depends on what the asset is and how you use it. Professional advice can help you avoid costly mistakes.

How Inherited Assets Are Treated at Tax Time

Although Australia has no inheritance or estate tax, certain inherited assets can trigger tax obligations when you earn income or sell them.

1. Capital Gains Tax (CGT) – Only When You Sell

You don’t pay CGT when you inherit, but you might when you sell the asset later. Here’s how it works:

• The cost base for inherited property or shares depends on when the asset was first acquired by the deceased:
  • If acquired before 20 September 1985 – the cost base to you will be the market value at date of death
  • If acquired on or after 20 September 1985 – the cost base to you will be the original cost base of the deceased.
• If the deceased owned a home that was their main residence and it wasn’t used to generate income, you might be exempt from CGT entirely – if you sell it within two years.
• If the asset was used to generate income (e.g. an investment property), CGT is more likely to apply when sold.

Tax tip: Keep the date of death valuation and any documents related to improvements or sales costs. These affect your CGT calculation.

2. Tax on Income From Inherited Assets

If the asset generates income – like rent, dividends, or business profits – you’ll need to declare that income in your tax return from the time you become the legal owner.

Examples:

• Rental income from an investment property
• Dividends from inherited shares
• Income from a family business

3. Superannuation Death Benefits

Super payouts can be tax-free or taxable depending on:

• Whether you’re a dependent under tax law
• The taxable and tax-free components of the super balance

Non-dependents (like adult children) may have to pay tax on part of the super benefit, often withheld before payout.

Record-Keeping: Your Best Friend at Tax Time

When you inherit, good records will save you money and stress.

Here’s what to keep:

• Valuations at date of death
• Acquisition and improvement costs
• Proof of any income earned (e.g. rental statements, dividend notices)
• Documentation for any future sale (e.g. sale contracts, agent fees)

You’ll need these for calculating CGT or reporting investment income correctly.

Key Tax Considerations as a Beneficiary

Inherited Asset	Immediate Tax?	Tax at Sale or Later?
Cash	No	Income earned is taxable
Property (main residence)	No	CGT may apply if sold later
Investment property	No	Rental income taxable; CGT applies on sale
Shares	No	Dividends taxable; CGT applies on sale
Superannuation payout	Possibly	Depends on your dependency status

 

Final Thoughts

Inheriting an asset might not trigger a tax bill right away – but if you earn income from it or decide to sell, you’ll likely have reporting obligations.

What you should do:

• Don’t rush into decisions – get professional guidance.
• Know your record-keeping responsibilities.
• Understand when CGT or income tax may apply.
• Review ATO guidance or consult a tax agent to stay compliant.

Have you recently inherited assets or property? Knowing how to handle it now will save you time, money, and headaches at tax time. Book an appointment today if you’d like to discuss your tax obligations for your inheritance.