Capital Gains Tax (CGT) & Deceased Estates

Generally, Capital Gains Tax (CGT) does not apply when you inherit an asset from a deceased estate.

However, CGT may be applicable if you, or you as the trustee of the deceased estate, sell an inherited asset.

Can You Avoid Capital Gains Tax on Inherited Property?

If the deceased passed away before CGT was introduced on 20 September 1985, you are not liable for CGT when selling the inherited property.

However, any significant improvements made to the property after 20 September 1985 may trigger a CGT liability.

For example, a significant property improvement may include renovating your inherited property if you spend more than 5% of the sale price and exceed the improvement threshold for the income year in which you sell the property.

In this case, you would be liable for paying CGT.

Selling an Inherited Property

If the deceased acquired the property before 20 September 1985 and you sell the inherited property within two years of their death, any capital gain or capital loss is disregarded.

In this case, you are not required to live in the property as your main residence during these two years.

If you inherited a property after 20 August 1996, and it was the deceased’s main residence that was not rented out before their death, any capital gain or loss is disregarded if you sell the property within two years of their death.

If the deceased lived in the property as their main home and never rented it out, and the person who inherits it also lives there as their main home, they won’t have to pay CGT.

For the property to qualify as your main residence, you must not rent it out, and you must be a beneficiary of the deceased.

Do You Pay Tax on Inheritance?

Generally, inheritance itself is not taxed in Australia.

However, tax implications, such as CGT, may arise depending on the circumstances surrounding the sale of inherited property.

CGT Considerations for Foreign Residents

CGT applies in certain circumstances if you are a foreign resident beneficiary of the deceased estate.

For instance, if the deceased was a foreign resident for more than six years at the time of their death, or if you have been a foreign resident for more than six years before you sell the inherited property, you will be liable for CGT.

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Related Blog – Tax Rates for Deceased Estates