You do not pay capital gains tax (CGT) when you inherit a property in Australia. There is no inheritance tax, and property passing from a deceased estate to a beneficiary generally has no CGT implications at the time. CGT on inherited property becomes a live question only when you later sell or otherwise dispose of it.

What you pay then turns on the property’s history: when the deceased bought it and how it was used. The timing of your sale decides how much of any gain is exempt, and many inherited homes can be sold with no CGT at all.

This guide covers the rules for Australian resident individuals, drawing on current Australian Taxation Office (ATO) guidance.

Different rules apply at death itself where an asset passes to a foreign resident or a tax-exempt entity such as a charity or complying super fund; any gain there is handled in the deceased’s final tax return.

CGT is deferred at inheritance, not charged

When a property passes to you under a will, through intestacy, as a distribution from the estate or under a deed of arrangement, there are generally no CGT implications at that point.

The executor, formally the legal personal representative, also disregards any capital gain or loss when the property passes from the estate to a beneficiary. If the executor instead sells the property and distributes cash, the estate deals with any CGT on that sale in the estate’s tax return.

The tax is deferred rather than cancelled. When you eventually sell, a set of rules decides how much of the gain is exempt, and timing sits at the centre of them.

The 2-year rule: selling the home CGT-free

An inherited dwelling can be sold fully exempt from CGT if you dispose of it within 2 years of the date of death and either of the following applies:

• the deceased acquired the property before 20 September 1985, or
• at the time of death, the property was the deceased’s main residence and was not being used to produce income.

You meet the 2-year requirement if the sale contract settles within 2 years of the death. How you use the property during those 2 years does not matter for this rule. You can rent it out or leave it vacant during that time and still claim the full exemption, provided settlement happens in time.

The exemption covers a dwelling and its land sold together. Land or structures sold separately from the dwelling generally do not qualify.

One qualification: for property inherited on or before 20 August 1996, an older test applies that looks at the deceased’s entire ownership period. For property inherited after that date, the test is the position just before death, as above.

Extensions to the 2-year period

The ATO extends the 2-year period where exceptional circumstances outside your control delayed the sale. Under Practical Compliance Guideline PCG 2019/5, an extension of up to 18 months applies automatically, with no application needed, if all of the following are true:

• more than 12 months of the first 2 years was spent dealing with one of these circumstances: a challenge to the will or to ownership of the property, a life interest or other equitable interest under the will delaying disposal, complex estate administration, a sale settlement that was delayed or fell through for reasons outside your control, or government COVID-19 restrictions on real estate activity
• the property was listed for sale as soon as practically possible once the impediment cleared, and the sale was actively managed to completion
• the sale settled within 12 months of listing
• none of the delay was materially caused by waiting for the market to improve, renovating to lift the sale price, inconvenience in organising the sale, or unexplained inactivity by the executor
• the extension needed is no more than 18 months.

Outside those conditions you can request a discretionary extension, usually once the sale has settled. The ATO only grants it for exceptional circumstances outside your control. Holding the property while the market recovers is expressly not one of them.

Why the deceased’s purchase date changes the rules

The start date of capital gains tax in Australia, 20 September 1985, splits inherited property into different streams.

If the deceased died before 20 September 1985, the property is fully exempt in your hands. Only major improvements or additions you make on or after that date may attract CGT.

If the deceased acquired the property before 20 September 1985, it was a pre-CGT asset while they owned it. Any gain built up during their ownership falls away: your cost base resets to market value at the date of death, and only growth after that date is potentially taxable. Selling within 2 years can exempt even that growth.

If the deceased acquired the property on or after 20 September 1985, the property carries its CGT history with it. Whether you take over their cost base or receive a market value reset depends on how the property was used just before death, covered next.

Working out your cost base

The cost base is what the sale proceeds are measured against to calculate your gain. For inherited property, the first element is set one of two ways.

Market value at the date of death applies if:

• the deceased acquired the property before 20 September 1985, or
• the property passed to you after 20 August 1996 (not as a joint tenant) and, just before death, it was the deceased’s main residence and was not being used to produce income.

The deceased’s own cost base applies in most other cases where they acquired the property on or after 20 September 1985. That generally means their purchase price plus incidental costs, which is why the estate’s records matter so much.

You can also add expenses the estate incurred that the executor would have been able to include in their own cost base, such as conveyancing fees on the transfer to you. Legal costs the executor incurred to defend the validity of the will can also form part of the cost base of estate assets.

Two further points help most beneficiaries. For the 50% CGT discount, you are treated as having owned the property since the deceased acquired it, or since their death for pre-1985 property, so the 12-month ownership test is usually met. Any unapplied capital losses the deceased had do not transfer to you or the estate.

Selling after 2 years: the occupation rule

Missing the 2-year window does not automatically mean tax. The full exemption still applies if, from the date of death until settlement, the property was not used to produce income and was the main residence of at least one of the following people:

• the person who was the deceased’s spouse immediately before death, unless permanently separated
• a person with a right to occupy the property under the will
• you, as the beneficiary disposing of the property.

If neither the 2-year rule nor the occupation rule fully applies, a partial exemption usually does. The taxable portion is the capital gain multiplied by non-main residence days divided by total days, so days the property was an eligible person’s main residence reduce the taxable fraction.

The ATO’s published example shows the effect. Vicki bought a house in 1998 and used it only as a rental until her death in 2001, when it passed to Lesley, who lived in it as her main residence until selling in 2025 with a $400,000 gain. Only Vicki’s 1,375 rental days out of 10,152 total ownership days were taxable, so the assessable gain was $400,000 x (1,375 divided by 10,152) = $54,176, before the 50% discount ATO.

Common timing traps

Settlement, not signing. The 2-year test needs a contract that settles within 2 years of death. A long settlement on a contract signed close to the deadline can push you past it.

Income use after the 2-year window. Renting the property out during the 2-year window does not affect the full exemption. After the window closes, each day the property produces income adds to the taxable fraction of any eventual gain.

The aged care scenario. If the deceased moved into aged care and their former home was rented out, they may still have chosen to treat it as their main residence for up to 6 years of income use, or indefinitely if it was not producing income. If that choice was made, the home can still count as their main residence just before death; you may need to ask the trustee or the deceased’s tax adviser whether it was. The same question often sits alongside the decision to keep or sell the family home when entering aged care.

Foreign residency. If the deceased had been a foreign resident for more than 6 years at the time of death, the main residence exemption is generally lost for their ownership period, and a beneficiary who has been a foreign resident for more than 6 years when they sell faces the same result for their own period. A beneficiary who has been a foreign resident for 6 years or less may still qualify if they satisfy the life events test.

Missing records. Pre-1985 property needs a market valuation at the date of death, and post-1985 property needs the deceased’s cost base records. Locating both during estate administration makes the eventual calculation much simpler.

When to involve a tax professional

The rules above are general. Real estate situations rarely are. Multiple beneficiaries, part-rental histories, granny flat arrangements, periods of absence, foreign resident beneficiaries and life interests all change the calculation.

It is worth speaking to a registered tax agent before a contract is signed rather than after, particularly if the 2-year deadline is close or the property ever produced income. Incomplete records are another reason to seek help early. Alteris Accounting, part of Alteris Financial Group, can review the CGT position on an inherited property as part of the estate’s broader tax affairs and coordinate with the executor or your solicitor where needed.

Inherited property decisions also connect with wider questions covered in our guides on estate planning and protecting an inheritance.

Frequently asked questions

Is there an inheritance tax in Australia?

No. Australia has no inheritance or estate tax. The relevant tax is CGT, and it only applies when an inherited asset is later sold or disposed of, subject to the exemptions.

Do I pay CGT if I move into the inherited property?

If you live in it as your main residence from the date of death until you sell, and it is not used to produce income in that time, the sale can be fully exempt even after 2 years.

How is the 2-year period measured?

From the date of death to settlement of the sale contract. The ATO can extend it where exceptional circumstances outside your control caused the delay, automatically for up to 18 months where the PCG 2019/5 conditions are met.

What if I inherited the property jointly with my siblings?

Each of you holds a share and applies the same rules to your own share of any gain. The exemption position can differ between co-owners, for example if one lives in the property and the others do not.

Alteris Accounting Pty Ltd (ABN 70 637 095 946) Tax Agent No.26024813. The information contained in this article is general in nature and does not take into account your personal tax circumstances. We recommend you consult an accountant or tax agent whose advice will take into account your particular tax affairs.

Rates and thresholds cited are current at the date of publication and are subject to change. Check the responsible authority for current figures.

Last updated: August 2026