CGT on Inherited Property Australia

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

Inheriting a property can be emotionally challenging — and confusing at tax time.

A common misconception is that capital gains tax (CGT) applies when you inherit a property. In reality, CGT usually does not apply when the property passes to you. However, CGT may apply later, when you sell — and the rules depend on several critical factors.

Understanding these rules early can prevent expensive mistakes and help you plan the sale properly.

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Does CGT Apply When You Inherit a Property?

No CGT is payable at the time you inherit a property from a deceased estate.

Instead, CGT is deferred until a later CGT event, usually when:

• You sell the property, or
• You transfer it to someone else (other than as part of the estate administration)

The key question for CGT purposes is how your cost base is calculated — and that depends on when the deceased acquired the property.

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The September 1985 Rule (The Single Most Important Factor)

Australian CGT law draws a hard line at 20 September 1985.

Why this date matters

• Property acquired before 20 September 1985 → Treated as a pre-CGT asset

• Property acquired on or after 20 September 1985 → Treated as a post-CGT asset

Your CGT outcome when selling an inherited property depends entirely on which side of this line the property falls.

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If the Deceased Acquired the Property Before 20 September 1985

This is generally the most favourable scenario.

How your cost base is calculated

If the property was a pre-CGT asset:

• Your cost base becomes the market value of the property at the date of death
• You will usually need a professional valuation as evidence

This effectively resets the cost base, often significantly reducing the taxable gain.

CGT discount timing

You are treated as having acquired the property at the date of death, meaning:

• The 12-month CGT discount period starts from that date

Example

• Market value at date of death: $900,000
• Sold two years later for $1,050,000 (after selling costs)

Capital gain = $150,000 Eligible for 50% CGT discount → $75,000 added to taxable income

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If the Deceased Acquired the Property After 19 September 1985

This scenario requires more detailed records.

How your cost base is calculated

If the property was post-CGT:

• You generally inherit the deceased’s original cost base
• This includes:
  • Their purchase price
  • Stamp duty and legal fees
  • Capital improvements
  • Less any depreciation claimed

You also inherit their original acquisition date for CGT discount purposes.

Why records matter

If records are incomplete, reconstructing the cost base can be difficult — and conservative estimates may result in higher tax.

See the record-keeping cost base checklist for what documents to look for.

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What If the Property Was the Deceased’s Main Residence?

Special rules apply if the inherited property was the deceased’s main residence.

Full exemption may apply if:

• The property was the deceased’s main residence, and
• It was not used to produce income at the time of death, and
• You sell it within 2 years of the date of death (extensions may apply)

In this case, no CGT is payable when you sell.

Partial exemptions

CGT may partially apply if:

• The property was rented before death
• You rent it out after inheriting
• You sell it more than two years after death

The calculation becomes time-based and can be complex.

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What If You Move Into the Inherited Property?

If you move into the inherited property and treat it as your main residence:

• It may qualify for a partial or full main residence exemption
• The outcome depends on prior usage and how long you live there

Rules such as the first used to produce income rule and the 6-year absence rule can apply.

Comparing outcomes using the PPOR vs investment property scenario can clarify which approach produces the lowest tax.

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How to Calculate CGT on an Inherited Property

The calculation process follows these steps:

1. Determine whether the property is pre-CGT or post-CGT
2. Establish your cost base (market value or inherited cost base)
3. Subtract selling costs from the sale price
4. Apply any capital losses
5. Apply the 50% CGT discount (if eligible)
6. Add the discounted gain to your taxable income

You can model this step-by-step using the Capital Gains Tax Calculator.

Tip: If timing is flexible, comparing outcomes across financial years can make a significant difference.

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Timing Matters: When Is CGT Payable?

CGT is assessed in the financial year in which you sign the contract of sale, not settlement.

Selling just before or after 30 June can shift the gain into a different tax year, potentially changing your marginal tax rate.

You can compare the impact using the sell this year vs next year scenario.

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Key Takeaways

• No CGT is payable when you inherit a property — CGT usually applies when you sell
• The most important factor is whether the deceased acquired the property before or after 20 September 1985
• Pre-CGT properties often benefit from a market-value cost base reset
• Main residence rules can fully or partially exempt the gain
• Selling timing and record quality can significantly affect the tax outcome
• Running the numbers before selling can save tens of thousands of dollars

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Inherited a property and planning to sell?

Use the Capital Gains Tax Calculator to estimate your CGT and compare different strategies before signing a contract.