No tax bill arrives the moment someone dies. The tax is spread across 3 places: the deceased's final tax return, the estate while it is administered, and the beneficiary when they later sell. We use the Doe family as our example: Jane (48) and John (50), married and living in Western Sydney, with children Mia (19) and Leo (15).

Is there inheritance tax in Australia?

No. Australia has no inheritance tax, estate tax or death duty, federally or in NSW. An inheritance is not income in the beneficiary's tax return. What does exist is a set of ordinary taxes that keep running after death:

• Capital gains tax: deferred on death, then paid by whoever sells the asset.
• Tax on super death benefits: payable when super goes to someone who is not a dependant for tax purposes.
• Income tax: in the deceased's final return, and on income the estate earns after death.
• Stamp duty and land tax: NSW duties on transferring property, and land tax while the estate holds it.

Does capital gains tax apply when someone dies?

Not at the time of death. Passing an asset to the executor, or from the executor to a beneficiary, is not a taxing event. The gain is rolled over and taxed when the beneficiary eventually sells.

What is the cost base of an inherited asset?

The beneficiary does not start again at today's value. For most assets they take over the deceased's original cost.

Worked example: selling the Penrith unit

Jane and John own an investment unit in Penrith as tenants in common in equal shares. They bought it in 2018 for $480,000 and it is now worth $650,000. As tenants in common, John's half passes under his will (see joint tenants vs tenants in common).

Most of that gain built up during John's lifetime, but Mia pays the tax at her own marginal rate. If John's executor had sold during the administration, the tax would usually have been dealt with through the estate.

The 2 year rule for the family home

If the home was the deceased's main residence just before death and was not being used to produce income, the executor or beneficiary pays no capital gains tax if the sale settles within 2 years of death. There is no time limit while the home is lived in by the deceased's spouse, a person with a right to live there under the will, or the beneficiary who inherits it. The ATO can allow extra time where the sale is delayed for reasons outside the family's control, such as a contested estate.

The Does' home is held as joint tenants, so it passes straight to Jane. The 2 year rule matters most for a home in a sole name, or on the second death.

Is super taxed when it is paid after death?

It depends on who receives it. The test is whether the person is a dependant for tax purposes, which is narrower than the people super law allows the fund to pay. An adult child is a dependant under super law, but usually not for tax.

Life insurance inside super often creates an untaxed element. Where super is likely to end up with adult children, ask your accountant or adviser whether anything can be done before death to reduce the taxable part. Who receives your super is controlled by your binding death benefit nomination, not your will, so the nomination and the will need to be planned together. The ATO sets out the rules on paying super death benefits.

Does the deceased still need to lodge a tax return?

Yes. The executor (or administrator, if there is no will) usually needs to lodge a final individual tax return for the deceased, often called the date of death return. If no return is needed, a non-lodgment advice is sent to the ATO instead. It covers 1 July to the date of death and includes wages, rent, interest, dividends and any capital gains up to that day. For an Australian resident, the full tax-free threshold applies even though it is a part year.

Say John dies on 15 March 2027 and Jane is his executor. The steps look like this:

1. Notify the ATO: Jane, or her accountant, tells the ATO about the death and provides proof of her authority, such as the will or the grant of probate.
2. Catch up earlier years: any outstanding returns, such as John's 2025-26 return, are lodged first.
3. Lodge the final return: covering 1 July 2026 to 15 March 2027, through a registered tax agent or on the paper form. It cannot be lodged through myTax or myGov. It is due on the usual date for that year, or later through a tax agent.
4. Lodge estate trust returns: from the day after death, the estate is treated as a trust with its own tax file number. Penrith rent received after 15 March 2027 goes in the estate's trust return each year until the half share is transferred.

Income the estate keeps is taxed at individual rates, with the tax-free threshold and no Medicare levy, for the first 3 income years of the estate. After that, a less generous rate scale applies. Once assets move into a testamentary trust, that trust lodges its own return every year.

Is there stamp duty when property passes to a beneficiary?

In NSW, a transfer of property from a deceased estate to a beneficiary attracts only a fixed concessional duty, currently $100, rather than full transfer duty. The concession applies where the transfer is made under and in line with the will or the intestacy rules, or where the executor appropriates a property to a beneficiary as part of their share. Revenue NSW explains the deceased estate concession.

Full duty can apply to the excess where the family divide the estate differently from the will, such as under a deed of family arrangement, or where a beneficiary receives more than their entitlement. Land tax also keeps running on investment property while the estate holds it, and is an estate expense until the transfer. For how the transfer itself works, see deceased estate property transfers.

How is an inheritance taxed for a child under 18?

Unearned income paid to a child under 18 is normally taxed at penalty rates. Income from a deceased estate is an exception. It is treated as excepted income and taxed at adult rates, whether it comes through a simple will (where the executor holds the child's share) or a testamentary trust.

Approximate, 2026-27 resident rates, assuming the child has no other income, after the low income tax offset where it applies, excluding Medicare levy. Since 1 July 2019, adult rates only apply to income from assets that came from the estate, or what they were sold for and reinvested in. Money added from elsewhere is taxed at penalty rates when paid to minors, so each parent's will should create its own trusts.

Do specific gifts or the residue change who pays the tax?

Yes, and this is one of the most common causes of unequal results. Capital gains tax follows the asset. Whoever receives an asset with a built-up gain also receives the future tax bill, while someone who receives cash receives no tax liability at all.

We generally suggest leaving the estate in shares, with a power for the executor to appropriate particular assets to particular beneficiaries as part of their share. The executor can still give Penrith to Mia, with the concessional duty and the capital gains tax rollover intact, but can take the tax built into each asset into account so the result is genuinely even. That avoids needing a deed of family arrangement later, which can cost full duty and lose tax concessions. Sentimental items are different, and are best discussed with the family first.

How do you plan for tax on death?

The tax on death is shaped by decisions made long before it: how property is titled, who your super is nominated to, and how your will is structured. Our estate planning consultation reviews your titles, super and structures so your will is drafted with the tax outcome in mind, and we coordinate with your accountant where needed. See the estate planning page for documents and fees.

This article is general information only, current as at October 2026, and is not legal, financial or tax advice. Estate planning, tax and Centrelink rules change over time and their effect depends on your circumstances. You should obtain advice specific to your situation before acting.