Tax Implications When Inheriting an Investment Property in Australia
Inheriting a property from a loved one can be both emotionally and financially significant.
If that property is an investment property, it’s important to understand the tax consequences — particularly around Capital Gains Tax (CGT).
The rules can get a little complex, but we’ll break them down so you know where you stand.
Quick Summary
• There’s no immediate tax or CGT payable when you inherit an investment property.
• CGT may apply when you sell the property later.
• Whether CGT applies — and how it’s calculated — depends on when the deceased acquired the property, when you sell it, and how you’ve used it.
Is There Tax Payable When You Inherit?
No. In Australia, there is no inheritance tax, and no CGT is triggered at the time of inheritance.
However, CGT is a factor down the track when you eventually dispose of (i.e., sell or transfer) the inherited property.
Understanding CGT Rules on Inherited Properties
The key question is: When is CGT payable?
It depends on a few factors:
1. When Did the Deceased Acquire the Property?
If the deceased acquired the property before 20 September 1985
This is before CGT was introduced in Australia. So:
• The property is considered pre-CGT.
• You’re only liable for CGT on the capital gain from the date of death (i.e., the property is revalued to market value at that date).
• If you sell it later, the CGT is based on the increase in value after the date of death.
If the deceased acquired the property on or after 20 September 1985
The property is subject to CGT. So:
• You inherit the cost base (i.e., what the deceased paid for it, plus any improvements and associated costs).
• When you sell it, your capital gain is the difference between your sale price and the deceased’s cost base (adjusted for any costs incurred after their passing).
2. How Have You Used the Property Since Inheriting It?
This matters a lot for CGT.
• If you live in it as your main residence: You might be eligible for a full or partial CGT exemption, especially if you sell it within 2 years of the deceased’s death.
• If you keep it as a rental/investment property: CGT will apply in full when you sell it, based on the cost base rules above.
When is CGT Payable?
You (as the beneficiary) only become liable for CGT when you sell the property. Not before.
Let’s break it down further:
| Situation | CGT Event? | When is CGT Payable? |
|---|---|---|
| You inherit the property | ❌ No | N/A |
| You continue to hold the property | ❌ No | N/A |
| You sell the property later | ✅ Yes | In the financial year of sale |
| You transfer it to someone else | ✅ Yes | In the financial year of transfer |
Special Rule: The 2-Year CGT Exemption
If the deceased’s property was their main residence, and you sell it within 2 years of their death, it may be exempt from CGT, even if you didn’t live in it.
You must also meet these conditions:
• The property was not used to produce income (i.e. not rented) between the date of death and the sale; or
• It was your main residence in that period.
If it takes longer than 2 years to sell, the ATO may grant an extension, but it’s not guaranteed.
Tips to Minimise CGT on Inherited Property
1. Get a valuation at the date of death this helps reset the cost base if the property was pre-CGT.
2. Consider living in the property to access main residence exemptions.
3. Sell within 2 years if the property was the deceased’s main residence and wasn’t rented.
4. Keep records – including the deceased’s purchase documents, renovation receipts, and estate admin costs.
Example Scenario
Sarah inherits an investment unit from her father, who bought it in 1995 for $250,000. At his death in 2023, it was worth $800,000. She keeps renting it out and sells it in 2025 for $900,000.
• She inherited her father’s original cost base: $250,000 plus costs.
• Her capital gain is $900,000 - $250,000 = $650,000.
• She may be eligible for the 50% CGT discount if she held it for over 12 months.
• She pays CGT in the 2024–25 financial year.
While no tax is payable when you inherit, it’s important to understand your exposure to CGT down the line.
The right strategy — such as living in the property, selling within 2 years, or getting expert advice — can make a big difference in how much tax you pay.
Note: This article is for information purposes only. If you've inherited property and you're unsure about your tax position, it’s wise to chat with a tax professional.