CGT Reform for Inherited Property and Deceased Estates: What Heirs Need to Know from 1 July 2027

General information only. This is not tax or financial advice. Inheritance and deceased estate tax matters are highly specific to individual circumstances — consult a registered tax agent and (where probate is involved) an estates lawyer for advice on your situation.

Death doesn’t trigger CGT for the deceased in Australia: a capital gain or loss when an asset passes to the executor or a beneficiary is disregarded under Division 128 of ITAA 1997 (unless it passes to a foreign resident, a charity or a super fund). Under s 128-15 the beneficiary takes the deceased’s cost base (for an asset bought on or after 20 September 1985) but is taken to have acquired the asset on the day the deceased died. The deceased’s purchase date carries over only for the 12-month ownership tests (the CGT discount test in s 115-30, and the indexation test in s 114-10(6)). The CGT reform — announced in Budget 2026 and now law (passed 25 June 2026, royal assent 26 June 2026, as the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49) and Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 (No. 50)) — did not amend Division 128. The Act doesn’t mention death or deceased estates at all.

What the reform DID change is what happens when the heir eventually sells. That disposal is a CGT event in the heir’s hands, and the reform’s 1 July 2027 split runs off the heir’s own acquisition date, which is the date of death. So the date of death decides how an inherited asset is treated. If the death is before 1 July 2027, the heir holds the asset across the reform date: all growth up to 1 July 2027, including decades of the deceased’s growth, stays in a discounted “deferred gain”, and only later growth is indexed and exposed to the 30% minimum tax. If the death is on or after 1 July 2027, the Act doesn’t say how the deceased’s pre-reform growth is treated (see the three buckets below).

If you’re inheriting property, shares, crypto, or other appreciating assets from a deceased relative — or if you’re an executor about to distribute estate assets — this article walks through exactly how the reform interacts with the Division 128 death rules, including the special carve-out for pre-1985 (pre-CGT) inherited assets, the 2-year main residence selling window, and worked examples covering the four scenarios you’re most likely to encounter.

The short version. Inherited an asset? Your cost base is generally the deceased’s cost base (what they paid plus improvements). You are taken to have acquired the asset on the day they died; the deceased’s purchase date counts only towards the 12-month ownership tests. If the death was before 1 July 2027 and you sell after that date, you are deemed to sell and buy back the asset at its market value just before 1 July 2027. Growth up to then (the deceased’s and yours) keeps the 50% discount, and only growth after that is indexed and exposed to the 30% minimum. If the death is on or after 1 July 2027, the Act leaves open how the deceased’s pre-reform growth is treated. Pre-1985 (pre-CGT) assets pass at their market value on the date of death. Inherited a main residence? You still have 2 years from the date of death to sell it tax-free under the main residence exemption — the reform doesn’t change that window.

For the full reform mechanics applied to general taxpayers, start with the master article: 50% CGT Discount Reform: Cost Base Indexation + 30% Minimum Tax from 1 July 2027. This article focuses on the inheritance-specific layer. For the pre-reform inheritance basics (Division 128, pre-1985 mechanics, 2-year main residence rule, partial exemptions), see CGT on Inherited Property Australia.

The four scenarios after inheritance

Most inheritances fall into one of four patterns. Each has different reform exposure:

The interaction between Division 128 (the death rules) and the Budget 2026 reform is what makes inheritance CGT more complex from 1 July 2027 onward. The date of death now decides which side of the reform line the heir’s acquisition falls on. The deceased’s records still matter too: their cost base becomes yours, and their purchase date counts towards the 12-month ownership tests.

Timeline — inheritance-specific reform dates

The key practical takeaway for executors: 30 June 2027 is the last EOFY for legacy treatment. If the will allows it, executors can realise estate assets before 30 June 2027 to lock in the legacy 50% discount on the full gain. After that date, estate sales fall under the new rules: split treatment where the death was before 1 July 2027, and the open Bucket C question where it wasn’t.

How time changes your tax bill — inheritance edition

For inherited assets, three things drive the result:

1. The date of death — it is the heir’s acquisition date, so it decides whether the heir holds the asset across 1 July 2027 (death before that date) or acquires it after the reform has started (death on or after it).
2. Growth up to 1 July 2027 — where the death is before 1 July 2027, everything the asset gained up to then, in the deceased’s hands and the heir’s, sits in the discounted deferred gain. A property mum bought in 1995 carries a large deferred gain; a flat bought in 2025 carries almost none.
3. The heir’s hold after 1 July 2027 — the longer the heir holds past the reform date, the bigger the reform portion and the bigger the CPI indexation uplift on the 1 July 2027 cost base.

For inherited pre-CGT assets, the heir’s cost base is the market value on the day the deceased died (ATO), so the deceased’s pre-1985 growth drops out of the math altogether.

Effect 1 — The date of death decides the split

Effect 2 — Heir’s hold past 1 July 2027 grows indexation

The longer the heir delays the sale past 1 July 2027, the bigger the CPI indexation uplift on the reform portion of the gain. With 2.5%/yr inflation:

For an heir who inherits a slow-growth asset (regional residential, low-yield bonds) and holds for 10+ years, indexation can absorb most of the reform gain. For high-growth assets (CBD apartments in NSW/VIC, ASX growth shares, crypto), most of the reform gain remains taxable even with full indexation.

Effect 3 — Sensitivity scenarios for inherited assets

Four scenarios with a $600,000 nominal gain at the heir’s sale. All assume the deceased bought on 1 July 2010, died before 1 July 2027, and the heir sells on 1 July 2033. The asset grows at a steady rate, so the market value just before 1 July 2027 sets the deferred (legacy) gain. Indexation runs at 2.5%/yr for six years:

The pattern matches the master article: high-growth inherited assets pay more under the reform; slow-growth assets can pay less, because indexation on a large 1 July 2027 cost base outweighs the lost discount. The big difference for inheritance is the pre-1985 rule. For the owner, a pre-CGT asset loses its exemption on growth after 1 July 2027 (s 112-175). For an heir, the old law already taxed growth after the date of death, so what changes is the switch from the 50% discount to indexation on that growth.

Heads up — the 30% minimum tax for retiree heirs. Many inheritances pass to adult children in their 50s and 60s, often partly retired with low taxable income. If your marginal rate would be below 30%, the reform’s 30% minimum tax ratchets the rate on the reform portion up to 30%. Recipients of payments on the statutory exemption list (Age Pension, DSP, JobSeeker, Carer Payment and others in s 119-15) are EXEMPT from the minimum tax — a meaningful carve-out for older heirs. Note the exemption is from the minimum tax only: exempt recipients still lose the 50% discount and their reform-portion gains still get indexation. Check your status against the CGT calculator before deciding on the disposal year.

Three-bucket transition for inherited assets

The buckets turn on the heir’s acquisition date, which s 128-15(2) fixes at the date of death:

The Bucket C gap. The deemed sale applies to an owner who held the asset on 30 June 2027 and keeps it “until a realisation event happens” on or after 1 July 2027. A realisation event is any CGT event except E4, E10 and G1 (s 977-5). Whether the passing of an asset on death counts is not addressed. If it does, the deceased is deemed to have bought the asset back at its 1 July 2027 value, and that reset cost base passes to the heir. But the Act treats the deferred pre-1 July 2027 gain as made in the income year of the realisation event, so it is unclear whether s 128-10 disregards it or whether it belongs in the deceased’s date-of-death return. If death doesn’t count, the heir takes the deceased’s original cost base and nothing preserves the discount on the pre-reform growth. The ATO says the reform applies only to gains that accrue after 1 July 2027, but neither the Act, its explanatory memorandum nor the ATO’s inherited-asset pages deal with this case. Keep a 1 July 2027 valuation of any asset an older relative holds, and get advice before lodging.

How the Bucket B split works in the enacted law. The Act implements the split as a Subdiv 112-E “deemed sale”: a CGT asset the owner acquired before 1 July 2027 and held to the end of 30 June 2027 is deemed disposed of just before 1 July 2027 and reacquired. The pre-1 July 2027 notional gain is worked out under the old law (50% discount preserved) and deferred until actual sale. The primary split method is market value just before 1 July 2027; a Minister-determined apportioning method is available as a taxpayer election. Worked examples 1, 3 and 4 below use an assumed 1 July 2027 market value. Practical point for executors and heirs: obtain or keep evidence of the asset’s market value at 1 July 2027 (a formal valuation for property, closing prices for shares) — for estates, that valuation will often sit decades after the deceased’s purchase records and is much easier to secure now than at a sale in the 2030s.

Worked example 1 — Inherited investment property held by deceased for 19 years (Bucket B)

Scenario. Mum bought a rental unit in Brisbane on 1 March 2008 for $280,000. She dies on 1 March 2027, when the unit is valued at $640,000. Brian, her son, is the sole beneficiary. He keeps renting it out and eventually sells on 1 March 2033 for $820,000 (after selling costs). Assume a valuer puts the unit at $650,000 just before 1 July 2027.

Brian’s inherited tax position.

• Cost base = mum’s cost base on the day she died = $280,000 (s 128-15(4); assume no improvements or depreciation adjustments)
• Acquisition date = the day mum died, 1 March 2027 (s 128-15(2))
• For the 12-month ownership tests, Brian counts from mum’s purchase on 1 March 2008
• Disposal date = 1 March 2033
• Nominal capital gain: $820,000 − $280,000 = $540,000

The 1 July 2027 deemed sale. Brian acquired the unit before 1 July 2027 and still holds it at the end of 30 June 2027, so he is deemed to sell it just before 1 July 2027 for its market value ($650,000) and buy it back for the same amount.

• Deferred (legacy) gain: $650,000 − $280,000 = $370,000, kept until the 2033 sale and eligible for the 50% discount
• Reform gain: $820,000 − $650,000 = $170,000

Reform portion — indexation. The reform indexes the 1 July 2027 cost base, not the gain:

• Years from 1 July 2027 to 1 March 2033 ≈ 5.67
• CPI ratio at 2.5%/yr ≈ 1.150
• Indexation uplift: $650,000 × 15.0% ≈ $97,634
• Real reform gain: $170,000 − $97,634 = $72,366

Tax calculation at Brian’s 45% MTR.

• Legacy portion: $370,000 × 50% × 45% = $83,250
• Reform portion: $72,366 × 45% = $32,565 (above the 30% minimum, so his marginal rate controls)
• Total CGT: $115,815

Compare to the old law (no reform):

• $540,000 × 50% discount = $270,000 taxable
• $270,000 × 45% = $121,500
• The reform lowers Brian’s bill by about $5,700 (about 5%). Mum’s growth stays in the discounted deferred gain, and five-plus years of indexation on a $650,000 cost base outweigh the lost discount on $170,000 of later growth.

If mum had died on 1 March 2028 instead, Brian would acquire the unit after 1 July 2027. The deemed sale couldn’t apply in his hands, and his 2033 gain would get no 50% discount. Whether mum’s death triggers her own 1 July 2027 deemed sale is not settled. If it does, Brian takes her $650,000 reset cost base, but it is unclear whether her $370,000 deferred gain is disregarded or taxed in her date-of-death return. If it doesn’t, Brian takes her $280,000 cost base with no discount on any of the gain. See the Bucket C gap above; we don’t put a figure on either reading.

Worked example 2 — Pre-1985 asset inherited after the 1 July 2027 reset (Bucket C)

Scenario. Granddad bought farmland near Wagga (NSW) in 1972 for about $8,000. He still owns it on 30 June 2027, when it is worth $1,600,000. He dies on 1 July 2030, with the farmland valued at $1,800,000 at his death. His granddaughter Emma inherits it, holds it and sells on 1 July 2034 for $2,100,000.

What the law says, and what it doesn’t.

1. The reset in granddad’s hands. Section 112-175 of Act No. 49 of 2026 applies to an asset that is a pre-CGT asset on 30 June 2027 where the owner continues “to hold the asset until a realisation event happens in relation to the asset on or after 1 July 2027”. The owner is treated as selling the asset just before 1 July 2027 and buying it back for its market value at that time ($1.6M here), and the Act’s note says this causes the asset “to cease to be a pre-CGT asset, and for the first element of the asset’s cost base to be reset, on 1 July 2027”. Growth up to 30 June 2027 stays exempt.
2. The death rules. Act No. 49 does not amend Division 128, the rules that pass an asset to an heir. The ATO’s cost-base page says that if the deceased acquired the asset before 20 September 1985, “the first element of your cost base is the market value of the asset on the day the deceased died” — $1.8M here. That guidance does not yet address the 2027 reform.
3. The open question. If the reset applied in granddad’s hands, the farmland stopped being a pre-CGT asset on 1 July 2027. Whether Emma then takes the date-of-death value ($1.8M) or granddad’s reset cost base ($1.6M) is not settled: neither the Act nor the ATO has said, and no source supports taking “the higher of” the two. Keep both valuations and get advice before lodging.

Either way the farmland was acquired on or after 1 July 2027 (by Emma at granddad’s death, or by granddad at the reset), so Emma’s whole gain falls under the new rules — Bucket C.

Emma’s calculation on the date-of-death reading (the ATO’s published rule).

• Cost base = $1,800,000
• Sale price = $2,100,000
• Nominal capital gain: $300,000

Indexation. The reform indexes the cost base, not the gain:

• Years from acquisition (1 July 2030) to disposal (1 July 2034) = 4 years
• CPI uplift at 2.5%/yr ≈ 1.104 (10.4%)
• Indexation uplift: $1,800,000 × 10.4% ≈ $186,863
• Real (post-indexation) gain: $300,000 − $186,863 = $113,137

Tax at Emma’s 37% marginal rate (Medicare levy ignored):

• $113,137 × 37% ≈ $41,861
• 30% minimum check: 37% > 30%, so her marginal rate controls. No minimum-tax uplift.

On the reset reading Emma’s cost base would be $1.6M and her nominal gain $500,000 rather than $300,000. How indexation would then run is not addressed either, so we don’t put a tax figure on that reading.

Compare to the old law. This is not new tax. Under the old law Emma would also have taken the date-of-death value as her cost base, owned the farmland for at least 12 months counted from granddad’s death, and paid CGT on the $300,000 gain after the 50% discount: $150,000 taxable, $55,500 at 37%. On the date-of-death reading the reform lowers her bill by about $13,600, because four years of indexation on a $1.8M cost base outweigh the lost discount on a modest gain. On the reset reading her gain is larger and the comparison could go the other way.

The 1 July 2027 reset is a real change for the owner of a pre-CGT asset: sell after that date and growth from 1 July 2027 is taxable. For an heir, the old law already taxed growth after the date of death; what changes is the discount-to-indexation switch, plus the open question of which cost base applies when the death falls after the reset.

Worked example 3 — Inherited main residence with the 2-year selling window (exempt, or Bucket B if kept)

Scenario. Dad dies on 1 June 2027, leaving the family home (a 4-bedroom in suburban Adelaide, SA) — his main residence and only property, not rented out — to his daughter Olivia. The home was bought in 1995 for $190,000 and is valued at $1,100,000 at death.

Path A — Olivia sells within 2 years (by 1 June 2029)

Main residence exemption applies in full. The deceased’s home was his main residence, not used to produce income at the time of death, and Olivia’s sale settles within 2 years of death. Under s 118-195 ITAA 1997 (not amended by the reform):

• Capital gain on the sale: fully exempt. $0 tax.
• The reform doesn’t apply — main residence exemption is on the master article’s “what’s unchanged” list.

This is the cleanest path for an inherited PPOR. Olivia can sell anywhere from a week after probate to 23 months after dad’s death and pay zero CGT.

Path B — Olivia holds past 2 years (sells 1 June 2030, with no ATO extension)

Without an extension, the full exemption is lost once the 2-year window passes. Assume Olivia rents the property out straight after dad’s death and sells for $1,250,000 (after selling costs) on 1 June 2030.

• Cost base: $1,100,000. Because the home was dad’s main residence just before he died and wasn’t producing income, the first element of Olivia’s cost base is its market value on the day he died (s 128-15(4) item 3), not dad’s 1995 cost. Dad’s growth from 1995 is never taxed.
• Acquisition date: 1 June 2027. Every beneficiary is taken to acquire an inherited asset on the day the deceased died (s 128-15(2)); that’s the general rule, not something special to homes.
• How much of the gain is taxable: all of it. Olivia rented the home from the start. She would have been fully exempt had she sold just before she first rented it, so s 118-192 treats her as acquiring it at its market value at that time (the same $1,100,000 here) and counts only her own non-main-residence days. She never lived there, so none of her gain is exempt. The ATO’s own example puts it the same way: the capital gain “for the period from the date of [the] death” until the sale is taxable.
• Nominal gain: $1,250,000 − $1,100,000 = $150,000

Bucket B split. Olivia acquired the home before 1 July 2027 and held it to the end of 30 June 2027, so she is deemed to sell and buy it back at its market value just before 1 July 2027. Assume that is still $1,100,000, a month after the death:

• Deferred (legacy) gain: $0
• Reform gain: $150,000

Reform portion indexation.

• Years from 1 July 2027 to 1 June 2030 ≈ 2.92; CPI ratio at 2.5%/yr ≈ 1.075
• Indexation uplift on the $1,100,000 cost base: ≈ $82,200
• Real reform gain: $150,000 − $82,200 = $67,800

Tax at Olivia’s 37% MTR.

• Reform: $67,800 × 37% = $25,086 (above the 30% minimum, so her marginal rate controls)
• Total CGT: $25,086

Under the old law she would have paid $150,000 × 50% × 37% = $27,750, so on these numbers the reform slightly lowers her bill. Either way, selling within the 2-year window would have cost her $0: missing it costs about $25,000 here.

Lever for heirs inheriting a PPOR: sell within 2 years where possible (the sale has to settle inside the window). The window is extended if the sale is delayed by exceptional circumstances outside your control (the ATO’s safe harbour allows up to 18 months, but waiting for the property market to pick up doesn’t qualify); otherwise you can ask the ATO to exercise its discretion.

Worked example 4 — Long-held inherited shares straddling the reform date (Bucket B)

Scenario. Aunty Pat bought 2,000 BHP shares on 1 March 1998 at $9.015 per share — total cost base $18,030 (ignoring brokerage for simplicity). She dies on 1 December 2026 with BHP at $44/share, total parcel value $88,000. Her niece Hannah inherits the lot. Assume BHP closes at $46 just before 1 July 2027. Hannah sells half (1,000 shares) on 1 December 2032 at $58/share = $58,000 sale proceeds.

Hannah’s tax position on the disposal.

• Cost base (proportional, half of Pat’s): $18,030 × 50% = $9,015
• Acquisition date: the day Pat died, 1 December 2026 (s 128-15(2)); for the 12-month tests Hannah counts from Pat’s purchase on 1 March 1998
• Disposal date: 1 December 2032
• Nominal gain: $58,000 − $9,015 = $48,985

The 1 July 2027 deemed sale. Hannah holds the shares across 1 July 2027, so they are deemed sold and bought back at $46 each.

• Deferred (legacy) gain: $46,000 − $9,015 = $36,985
• Reform gain: $58,000 − $46,000 = $12,000

Reform portion indexation.

• Years from 1 July 2027 to 1 December 2032 ≈ 5.42; CPI ratio at 2.5%/yr ≈ 1.143
• Indexation uplift on the $46,000 cost base: ≈ $6,589
• Real reform gain: $12,000 − $6,589 = $5,411

Tax at Hannah’s 30% MTR (assume she earns a typical $90k salary):

• Legacy: $36,985 × 50% × 30% = $5,548
• Reform: $5,411 × 30% = $1,623 (MTR equals the 30% minimum)
• Total CGT: $7,171

Compare to the old law. $48,985 × 50% × 30% = $7,348. On these numbers the reform lowers her bill by about $180 (about 2%).

Hannah’s case shows the typical pattern for long-held inherited shares where the death came before the reform date: nearly all of Pat’s growth sits in the discounted deferred gain, and indexation on the $46 cost base offsets most of the tax on the later growth. If Pat had died after 1 July 2027 instead, Hannah’s result would turn on the Bucket C question above.

Division 128 — what’s preserved

Act No. 49 of 2026 does not amend the Division 128 ITAA 1997 death rules. The mechanics carry through unchanged:

• Gain on death disregarded. A capital gain or loss when the asset passes to the executor or a beneficiary is disregarded (s 128-10), unless it passes to a foreign resident, charity or super fund.
• Beneficiary inherits the cost base. For post-CGT assets, the heir takes the deceased’s cost base on the day they died (purchase price + improvements + capital costs − any depreciation). For pre-CGT assets, and for a home that was the deceased’s main residence just before death and not producing income, the heir takes the market value at the date of death (s 128-15(4)).
• Acquisition date = date of death. The executor or beneficiary is taken to have acquired the asset on the day the deceased died (s 128-15(2)). This is the load-bearing rule for the reform, because the 1 July 2027 deemed sale depends on whether the heir held the asset before that date.
• No 12-month hold reset. For the CGT discount and indexation 12-month tests only, the heir counts ownership from the deceased’s purchase (from the date of death for a pre-CGT asset).

What this means practically: if you inherit an asset a relative bought in 1998, you meet the 12-month test straight away, but for everything else, including the reform’s split, you acquired the asset on the day they died. If that was before 1 July 2027, the growth since 1998 up to 1 July 2027 is a discounted deferred gain when you sell.

Pre-1985 inheritance carve-out — the most distinctive interaction

Pre-CGT (pre-20 September 1985) assets are where the reform and the death rules meet most awkwardly. Four points:

1. The existing death rule. If the deceased acquired the asset before 20 September 1985, the first element of the heir’s cost base is its market value on the day the deceased died, and for the CGT discount the heir counts ownership from the date of death (ATO). Act No. 49 of 2026 does not amend these rules.
2. The reset in the owner’s hands. Section 112-175 applies to an asset that is a pre-CGT asset on 30 June 2027 and that the owner continues to hold until a realisation event on or after 1 July 2027. The owner is treated as selling it just before 1 July 2027 and reacquiring it at its market value (or an amount worked out under an apportioning method the owner chooses), which ends its pre-CGT status. Growth to 30 June 2027 stays exempt; growth after is taxable.
3. Death before 1 July 2027. The heir takes the date-of-death market value and is treated as acquiring the asset at the date of death, so they hold an ordinary asset across the reform date and the Subdiv 112-E split runs from the date of death (Bucket B).
4. Death on or after 1 July 2027 — not settled. The ATO’s inherited-asset pages still give the date-of-death market value, but they don’t address the reset, and the Act doesn’t say whether the heir instead takes the deceased’s reset cost base. No source supports taking the higher of the two. Either way the heir’s gain falls wholly under the new rules (Bucket C). See Worked example 2.

Practical effect: if the death falls before 1 July 2027, the heir starts where the old law put them — date-of-death cost base, no tax on growth before death — and only the post-reform share of later growth is indexed instead of discounted. If the death falls after 1 July 2027, keep both a 1 July 2027 valuation and a date-of-death valuation until the ATO says which one applies.

Example. Pop bought a beach house in Byron Bay (NSW) in 1978 for $25,000. He dies on 1 January 2027 (before the reform). The beach house is worth $2.5M at death, so Pop’s son Marcus inherits with a cost base of $2.5M and an acquisition date of 1 January 2027. Marcus sells on 1 January 2034 for $3.5M: a nominal gain of $1M. Bucket B split by time: 181 of 2,557 days fall before 1 July 2027 (about 7.1%), so about $70,786 is legacy gain and $929,214 is reform gain. Using the 1 July 2027 value that split implies (about $2.57M) as the reform cost base, indexation at 2.5%/yr over 6.5 years (≈ 17.4%) shelters about $447,574, leaving a real reform gain of about $481,640. At Marcus’s 45% marginal rate: legacy $70,786 × 50% × 45% ≈ $15,927, reform $481,640 × 45% ≈ $216,738, total ≈ $232,665.

Compare to the old law: $1M × 50% × 45% = $225,000. On these numbers the reform adds about $7,700, or roughly 3%. Most of the gain falls after 1 July 2027, but indexation on a $2.5M-plus cost base offsets most of the lost discount.

Main residence inherited — the 2-year window survives

The 2-year main residence exemption for inherited PPORs (s 118-195 ITAA 1997) is preserved by the enacted reform. The rule operates the same way pre- and post-reform:

• Property must have been the deceased’s main residence at the date of death (or remain treated as such under the 6-year absence rule).
• Property must not have been used to produce income at the date of death.
• Heir must sell within 2 years of date of death (settlement, not contract date).
• The window is extended if the sale is delayed by exceptional circumstances outside the heir’s control (under the ATO’s safe harbour, by up to 18 months, for example a challenge to the will or a complex estate). Waiting for the property market to pick up doesn’t qualify.

If the heir meets the conditions, the gain is fully exempt — and the reform never enters the math. This is by far the cleanest inheritance outcome for an heir of a deceased’s main residence.

Where reform interacts: if the heir holds beyond the 2-year window (and doesn’t get an extension), main residence exemption is lost. The cost base is the market value at the date of death (s 128-15(4) item 3, for a home that was the deceased’s main residence just before death and not producing income), so the deceased’s growth is never taxed. If the death was before 1 July 2027 and the sale is after, the gain is split at 1 July 2027. See Worked example 3 above.

Lever for heirs: if you inherit a PPOR, sell within 2 years. The longer you delay past 2 years, the worse the reform-portion tax becomes (because each additional year past 1 July 2027 adds to the reform share AND adds modest indexation that doesn’t fully offset).

Testamentary trusts — a quick word

When a deceased estate distributes via a testamentary trust rather than directly to individual beneficiaries, the CGT mechanics get more complex:

• Trustee sale before distribution. If the trustee sells the asset before distributing to beneficiaries, the trustee (as legal personal representative) is taken to have acquired the asset on the day the deceased died, with the deceased’s cost base (s 128-15). The trustee then has the CGT obligation on the sale — split treatment applies as it would for any other taxpayer. Distributions to beneficiaries of the net cash proceeds are typically not further taxed (the gain has already been crystallised).
• In-specie distribution. If the trustee distributes the asset itself (not cash proceeds) to a beneficiary, the beneficiary takes the cost base the asset had in the deceased’s hands (plus the executor’s costs) and is also taken to have acquired it on the day the deceased died. The CGT event happens when the beneficiary eventually sells.
• Discretionary testamentary trust. The trustee has discretion to allocate the gain to specific beneficiaries (potentially at different marginal rates). The reform’s 30% minimum tax applies if a beneficiary’s MTR on the allocated gain would be below 30%.

Testamentary trusts have meaningful tax planning value (minor beneficiaries get adult tax rates on trust income, gain-splitting across multiple beneficiaries reduces MTR exposure), but the mechanics are complex enough that you should consult a tax specialist before relying on them. The reform doesn’t change the underlying structure but does affect the after-tax outcome on any post-2027 disposal.

Foreign-resident beneficiary — withholding rules continue

For foreign-resident beneficiaries inheriting Taxable Australian Property (typically real estate in Australia, including investment properties and the deceased’s PPOR):

• Division 128 still applies on death for Australian property. Foreign-resident heirs of taxable Australian property take the cost base and the date-of-death acquisition date the same way Australian-resident heirs do. (If the deceased was an Australian resident and a post-CGT asset that isn’t taxable Australian property passes to a foreign resident, the gain is taxed in the deceased’s date-of-death return instead.)
• CGT applies on the eventual disposal. Foreign-resident heirs pay CGT on the gain attributable to Australian property, with no 50% discount available (the 50% discount for foreign residents was abolished in 2012). Under the enacted reform, foreign and temporary residents are also excluded from the new cost base indexation — their gains remain fully taxable at non-resident rates, which start above 30% anyway.
• Foreign Resident Capital Gains Withholding (FRCGW) continues. When a foreign-resident heir sells Australian real estate, the purchaser must withhold 15% (under current law; check current rate) of the sale price and remit to the ATO. The heir then claims the withheld amount as a credit against their CGT liability on lodgement.
• Main residence exemption is restricted for foreign residents — generally not available to non-residents at the time of sale, except in narrow circumstances.

The reform doesn’t loosen any of these rules. Foreign-resident heirs of Australian property have less flexibility on CGT timing and lose the 50% discount benefit entirely on post-reform gains.

Planning levers for executors and heirs

A handful of practical actions can meaningfully reduce CGT exposure on an inheritance:

1. Distribute and sell within 2 years for main residence properties. This is the single highest-leverage move. The exemption is binary — sell within 2 years (or with extension), pay $0; miss it, the entire gain becomes taxable (with reform-portion uplift).
2. Crystallise pre-reform gains in 2026-27 if the executor is realising estate assets. If the will gives the executor discretion to sell assets before distributing cash to beneficiaries, selling in the 2026-27 income year locks in the legacy 50% discount on the entire gain. Caveat: estate tax returns are filed differently from individual returns, and the executor’s marginal rate may differ from the beneficiaries’.
3. Check how much of the gain sits before 1 July 2027. Where the death was before 1 July 2027, all growth up to then keeps the 50% discount whenever the heir sells, so for a long-held asset selling within a few years of inheriting may not be significantly worse than selling in 2026-27. Run scenarios in the CGT calculator.
4. Keep two valuations for pre-1985 assets. If a relative has held an asset since before 20 September 1985 and still holds it on 30 June 2027, get a market valuation as at 1 July 2027 (the s 112-175 reset value) as well as a date-of-death valuation. If they die after 1 July 2027 it is not yet settled which one sets the heir’s cost base. Don’t rely on guesswork — get formal valuations.
5. Beneficiaries on low marginal rates: watch the 30% minimum tax. Heirs in retirement or with low taxable income may be hit by the minimum tax on the reform portion. Recipients of payments on the statutory exemption list (Age Pension, DSP, JobSeeker, Carer Payment and other listed payments) are exempt from the minimum tax — though they still lose the 50% discount like everyone else; everyone else should run the numbers before deciding on disposal timing.
6. Capital loss harvesting becomes more valuable post-reform. Carried-forward capital losses offset legacy and reform gains alike. The CGT Harvest Calculator ranks loss-harvesting candidates if the heir holds other investments.
7. Test the new build election if applicable. New residential dwellings are the one asset class that keeps the 50% discount under the enacted law — the taxpayer chooses, per disposal, between the 50% discount and indexation (choosing indexation also opts the gain into the 30% minimum tax). There is no holding-period window on this. If the deceased held an eligible new dwelling, the heir can make the choice at disposal — model both and pick cheaper.

Linked calculators

• Capital Gains Tax Calculator — hero calculator: model legacy + reform-period gains on any inherited asset.
• Investment Property Calculator — model holding costs, depreciation, and eventual CGT for an inherited rental property over the remaining hold period.
• CGT Harvest Calculator — rank capital loss harvesting candidates that can offset the gain on an inherited asset disposal.

Sources

• Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49 of 2026) and Income Tax Rates Amendment (Tax Reform No. 1) Act 2026 (No. 50 of 2026) — royal assent 26 June 2026 (legislation.gov.au)
• Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (No. 49), as made — s 112-175, pre-CGT assets deemed sold and reacquired on 1 July 2027
• ATO: Cost base of inherited assets and How CGT applies to inherited assets
• APH bill homepage — Treasury Laws Amendment (Tax Reform No. 1) Bill 2026
• Treasury Budget Paper No. 2, Tax Reform — Boosting Home Ownership measure (p21), 12 May 2026 — original announcement
• Income Tax Assessment Act 1997, Division 128 (s 128-10 gain on death disregarded; s 128-15 acquisition on the day of death and cost base), s 115-30 (12-month discount test), Subdivision 118-B (main residence exemption — esp. ss 118-192, 118-195 and 118-200 for inherited dwellings), s 977-5 (realisation event)
• ATO: Guide to capital gains tax 2026 — Deceased estates and Real estate and main residence
• ATO: Inherited property and CGT and Extensions to the 2-year ownership period
• ATO TR 2004/D5, Income tax: tax consequences for a beneficiary of a deceased estate of trusts of capital gains tax (CGT) events
• ATO QC 66062, Inherited property and CGT (existing guidance, expected to be updated post-reform)
• 50% CGT Discount Reform: Cost Base Indexation + 30% Minimum Tax from 1 July 2027 — master article on the reform mechanics
• CGT on Inherited Property Australia — pre-reform inheritance basics (Division 128, 2-year rule, partial exemptions)

Related reading

• CGT Reform for Property Investors — companion article on investment property mechanics under the reform
• Negative Gearing Reform Budget 2026: What Changed by Purchase Date — paired negative-gearing changes for residential property held in an estate
• Budget 2026 Explained: Winners and Losers — full Budget breakdown