Australia
Capital gains tax on inherited property in Australia: the two-year window and what follows
When a property that was the deceased's main residence is sold within two years of the death, it is generally exempt from capital gains tax. After two years, the cost base resets to the market value at the date of death, and tax applies to any growth above that figure. On a property worth $900,000 at death and sold for $1,000,000 after 30 months, the estimated tax for someone with $90,000 of other taxable income is $16,350, after the 50% CGT discount. If the property was not the deceased's main residence, the cost base may be the deceased's original purchase price instead, producing a significantly larger bill.
| Deceased's main residence sold within 2 years | Generally exempt |
| Cost base after 2 years (main residence) | Market value at date of death |
| Cost base (not main residence) | Deceased's original cost base |
| CGT discount (held 12+ months) | 50% |
| Medicare levy | 2% on the net capital gain |
| Tax on $900,000 property sold for $1,000,000 | $16,350 (at $90,000 income) |
The two-year exemption for the deceased's main residence
If the property was the deceased's main residence just before they died and is sold within two years of the death, the full main residence exemption applies and no capital gains tax is payable. This is the simplest outcome and the most common one for a family home sold during the administration of the estate.
The two-year window runs from the date of death, not from the date probate is granted. Where a genuine delay in selling arises (for example, because of a legal dispute over the will), the Commissioner of Taxation can extend the period, but an extension is not automatic.
During the two-year window, the property can rise in value and still be sold tax-free. A house worth $900,000 at death and sold 18 months later for $950,000 produces an estimated $0 in capital gains tax.
What cost base applies after two years?
Once the two-year window closes, the cost base depends on whether the property was the deceased's main residence:
- Deceased's main residence. The cost base resets to the market value at the date of death. Only the growth after that date is taxable. On a house worth $900,000 at death and sold for $1,000,000, the gain is $100,000.
- Not the deceased's main residence (investment property, holiday home). The cost base is generally the deceased's original cost base. On the same house, originally bought for $400,000, the gain is $600,000, and the estimated tax is $129,850 compared to $16,350 with the reset base.
The difference is substantial. Getting the cost base wrong, by using the original purchase price for a main residence or the death-date value for an investment property, can overstate or understate the tax by tens of thousands of dollars.
How much tax at different sale prices?
The table takes a property that was the deceased's main residence, valued at $900,000 at death and sold after the two-year window has passed. The seller has $90,000 of other taxable income. The 50% CGT discount applies because the combined holding period exceeds 12 months.
| Sale price | Gain | After 50% discount | Estimated tax |
|---|---|---|---|
| $900,000 | $0 | $0 | $0 |
| $950,000 | $50,000 | $25,000 | $8,000 |
| $1,000,000 | $100,000 | $50,000 | $16,350 |
| $1,100,000 | $200,000 | $100,000 | $35,850 |
| $1,200,000 | $300,000 | $150,000 | $59,350 |
Cost base $900,000, seller has $90,000 other income, 2026-27. Tax includes income tax on the gain at marginal rates plus the 2% Medicare levy.
A sale at or below the death-date value produces no gain and no tax. The 50% discount halves the taxable amount, but the net capital gain is then added to the seller's other income and taxed at their marginal rate, so a higher income pushes the gain into higher brackets.
How does the seller's income affect the bill?
Australia taxes capital gains at the individual's marginal income tax rates (plus the Medicare levy), not at a flat rate. The net capital gain stacks on top of other taxable income, so the same gain produces different tax amounts depending on what the seller already earns.
On the $1,000,000 sale with a $900,000 cost base:
| Other taxable income | Net capital gain | Estimated tax on the gain |
|---|---|---|
| $40,000 | $50,000 | $15,250 |
| $90,000 | $50,000 | $16,350 |
| $180,000 | $50,000 | $22,700 |
Same property, same sale price, three income levels, 2026-27. The net capital gain is identical; the tax differs because of marginal rate stacking.
The gap between the lowest and highest income levels illustrates why the seller's overall tax position matters. Two siblings inheriting equal shares of the same property can face very different effective rates.
What if the beneficiary moves into the inherited property?
If the beneficiary makes the inherited property their main residence, the main residence exemption covers the period of genuine occupation. The exemption is proportional: the days it was the beneficiary's main home, over the total days of ownership by the beneficiary.
Take a property worth $900,000 at death, sold four years later for $1,100,000:
| Situation | Estimated tax |
|---|---|
| Never lived in by the beneficiary | $35,850 |
| Beneficiary lived in it for 2 of the 4 years | $16,350 |
Cost base $900,000, sold for $1,100,000, $90,000 other income.
Moving in has to be genuine. The ATO looks at where the person actually lives, not where they receive mail. Nominating a property as a main residence while continuing to live elsewhere does not satisfy the test.
What about properties acquired before 20 September 1985?
Properties the deceased acquired before 20 September 1985 (the date CGT was introduced in Australia) are treated differently. If the deceased held the property continuously from before that date until death, the beneficiary's cost base is the market value at the date of death, regardless of whether it was the deceased's main residence. This gives the same reset as a main residence.
If the deceased acquired the property after 19 September 1985 and it was not their main residence, the cost base is generally the deceased's original cost base, not the death-date value. The distinction matters because pre-CGT assets get a more favorable starting point.
Where a property was the deceased's main residence for only part of the ownership period (for example, it was rented out for some years), a partial main residence exemption may apply and the cost base calculation becomes more involved.
Work out your own figure with the Australian property CGT calculator
Common questions
Do you pay capital gains tax on an inherited property in Australia?
It depends on timing and whether the property was the deceased's main residence. The deceased's main residence sold within two years of death is generally exempt. After that, or for a property that was not the deceased's main residence, capital gains tax applies to the growth above the relevant cost base.
What is the two-year rule for inherited property?
If the property was the deceased's main residence just before death and is sold within two years, the main residence exemption applies in full and no CGT is payable. The two years run from the date of death. The Commissioner can grant an extension where genuine circumstances caused a delay, but extensions are not automatic.
What cost base do I use for an inherited property?
For the deceased's main residence: the market value at the date of death. For a property that was not the deceased's main residence (such as an investment property): generally the deceased's original cost base, including acquisition costs and capital improvements they made. The difference can be hundreds of thousands of dollars on a property held for decades.
Does the 50% CGT discount apply to inherited property?
Yes, as long as the combined period of ownership by the deceased and the beneficiary totals at least 12 months. In practice this is almost always met because the deceased usually held the property for well over a year. The discount halves the net capital gain before it is added to the seller's taxable income.
How much CGT on an inherited house sold for ${aud(SALE_3YRS)}?
If the property was the deceased's main residence valued at $900,000 at death, sold after the two-year window, the gain is $100,000. After the 50% discount, the net capital gain is $50,000, producing an estimated $16,350 in tax for someone with $90,000 of other income. If it was not the deceased's main residence, the cost base may be lower and the tax significantly higher.
What if the inherited property was an investment or rental property?
An investment property does not qualify for the two-year main residence exemption. The cost base is generally the deceased's original cost base, not the market value at death. On a property originally bought for $400,000 and sold for $1,000,000, the gain is $600,000 and the estimated tax is $129,850, compared to $16,350 if the death-date value of $900,000 were used as the base.
This is an estimate for general information only, not tax, legal or financial advice. Tax rules are complex and depend on your circumstances, and figures may not reflect the latest changes. Confirm your position with Australian Taxation Office (ato.gov.au) or a qualified tax adviser before acting. The terms of use set out the limits of this estimate and of our liability.
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