Inherited a Property or Shares? CGT Traps and Tax-Smart Strategies for Australian Families
Inherited a Property or Shares?
CGT Traps and Tax-Smart Strategies for Australian Families
Not All Inheritance Comes Tax-Free
In Australia, there is no formal inheritance tax — but that does not mean your family will avoid a tax bill.
When you inherit property or shares, capital gains tax (CGT) often applies if those assets are sold later. Many high-income families are caught off guard by unexpected CGT liabilities, especially when estate planning has not accounted for them.
When CGT Applies to Inherited Assets
Here is how CGT typically works in Australia:
Property
If you inherit an investment property and later sell it, CGT is calculated from the original purchase price paid by the deceased — not from the date you inherited it.
However, if you sell it within two years and do not rent it out, you may qualify for a CGT exemption.
Shares or Managed Funds
The same rule applies: CGT is based on the deceased’s original cost base.
If the shares have significantly appreciated, a future sale could trigger a substantial CGT event.
Main Residence
Often exempt, but not always. Exemption may be lost if the property is rented before sale or held too long after the date of death.
Three Strategies to Manage or Minimise CGT
- Consider Timing the Sale Carefully
If market conditions and your personal tax position allow, timing the sale can reduce CGT. For property, selling within two years of inheritance can unlock exemptions.
- Use Testamentary Trusts to Stream Capital Gains
A testamentary trust can distribute capital gains across multiple beneficiaries. This allows each person to use their individual tax threshold and marginal rate, reducing the overall tax burden.
- Keep Detailed Records Early
On inheriting assets, gather the historical purchase data and cost base information immediately. These records are often hard to retrieve later, especially for long-held assets.
Case Study
Amelia inherits a rental unit in Bondi from her father, who purchased it in 1985 for $150,000. The property is now worth $2.4 million.
Her accountant advises:
- CGT applies on the capital gain from $150,000 to the eventual sale price
- A 50% CGT discount may apply if held over 12 months
- A partial exemption may apply if sold within two years without being rented
To reduce the risk of higher CGT, Amelia sells within 18 months and reinvests part of the proceeds into a family trust.
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FAQ
Q: Will I pay CGT immediately after inheriting?
A: No. CGT only applies when the asset is sold, unless the deceased sold it prior to death.
Q: Is there a two-year CGT exemption?
A: Yes, for inherited property. To qualify, the property must be sold within two years, not rented out, and must have been the deceased’s main residence.
Q: Can CGT be shared among family members?
A: Yes. Testamentary trusts can distribute capital gains across beneficiaries, each taxed at their own marginal rate.
Q: What if I do not know the original purchase price?
A: The ATO accepts reasonable estimates based on valuations or historical records, but it is best to reconstruct documentation as early as possible.
(Note: This article and FAQ are general information only and do not constitute legal or tax advice. Please seek qualified advice tailored to your personal circumstances.)
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