For educational purposes only. Not tax, legal, or financial advice. Tax laws change frequently. Consult a registered tax agent or CPA for your specific situation.
Australia has no inheritance tax, but capital gains tax defers to the beneficiary under Division 128 ITAA 1997 and super death benefits can attract up to 32% effective tax when paid to a non-tax dependant. For the 2025-26 year, a deceased estate is taxed at individual rates (with the full tax-free threshold) for its first three income years, after which penal trust rates under s 99A ITAA 1936 can apply.
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Australia abolished inheritance and estate duties by 1979, but death still triggers tax. Capital gains defer rather than disappear: Division 128 ITAA 1997 rolls over the deceased's cost base to beneficiaries, and the gain lands when they eventually sell. Super death benefits paid to non-tax dependants (typically independent adult children) face up to 17% on the taxed element and 32% on the untaxed element. Executors running a business through the estate must maintain ABN registration, lodge BAS, and file trust returns for the estate as a separate taxpayer.
The reality this serves
Executors, legal personal representatives and beneficiaries dealing with the tax consequences of a death in Australia. No inheritance tax exists, but CGT crystallises on deferred gains, superannuation death benefits can attract up to 32% tax for non-dependants, and the executor must lodge both a final individual return and ongoing estate trust returns while keeping GST and ABN obligations current if a business continues trading.
CGT rollover on death (Division 128 ITAA 1997)
When a person dies, Division 128 disregards any capital gain or loss on assets passing to the legal personal representative (LPR) or beneficiary. No CGT event occurs at death. The gain defers until the LPR or beneficiary disposes of the asset. For post-CGT assets (acquired on or after 20 September 1985), the beneficiary inherits the deceased's original cost base including all adjustments. For pre-CGT assets (acquired before 20 September 1985), the beneficiary is taken to have acquired the asset at market value at the date of death, effectively resetting into the CGT regime. If the beneficiary holds the inherited asset for at least 12 months from the date of death, the 50% CGT discount applies to individuals and trusts under current 2025-26 rules.
Capital gains and losses on assets passing as a result of death are disregarded. The beneficiary inherits the deceased's cost base for post-CGT assets.(ITAA 1997 Division 128)
Super death benefits: tax dependants vs non-dependants
Lump sum super death benefits paid to a tax dependant (spouse, child under 18, financial dependant, or person in an interdependency relationship) are entirely tax-free. Paid to a non-tax dependant (typically an independent adult child), the tax-free component remains tax-free, but the taxable component attracts up to 15% plus 2% Medicare levy on the taxed element (effective 17%) and up to 30% plus 2% Medicare levy on the untaxed element (effective 32%). For SMSF owners, aligning binding death benefit nominations (BDBNs) with the will, buy-sell arrangements, and tax-dependant status is critical to minimising death-benefit tax leakage. Non-lapsing BDBNs require explicit trust deed authority and strict SIS compliance on witnessing and dependant status.
Super death benefits to tax dependants are tax-free. Benefits to non-dependants attract 15% (taxed element) or 30% (untaxed element) plus Medicare levy.(ITAA 1997 Subdivision 302-B; SIS Act 1993)
Deceased estate as a separate taxpayer
A deceased estate is treated as a trust for tax purposes and requires its own TFN. The LPR lodges the final individual return covering 1 July to date of death at normal individual rates. For post-death income, the LPR lodges trust returns for the estate. In the first three income years, retained estate income is taxed at individual rates with the full tax-free threshold under s 99 ITAA 1936 (no Medicare levy, no access to offsets). After three years, or where income is not distributed to beneficiaries, the estate risks assessment under s 99A at the top marginal rate. Income distributed to adult beneficiaries is taxed at their marginal rates.
Deceased estates are taxed as trusts. Retained income in the first three years attracts concessional individual rates rather than the penal top rate.(ITAA 1936 s 99, s 99A)
Executor obligations: final return, ABN, GST and BAS
The executor lodges a final individual tax return for the deceased (1 July to date of death) including all income and capital gains from pre-death disposals. If the deceased operated a business, the executor must decide whether to continue, wind up, or sell. While the estate carries on an enterprise, the ABN and GST registration remain active, BAS must be lodged each quarter, and trading income belongs to the estate. The executor should ensure someone is empowered under the will or enduring documents to operate bank accounts, sign BAS, engage staff and suppliers, and manage creditors pending sale or closure.
Allowable expenses in context
Estate administration expenses follow trust and estate tax rules, not the general deduction provisions for individuals.
Legal fees for obtaining probate and administering the estate: deductible against estate income where they relate to income-producing activities of the estate.
Accountant and tax agent fees for lodging the final return and estate trust returns: deductible to the estate.
Valuation fees for CGT assets at date of death (pre-CGT assets): deductible where necessary to establish the cost base for subsequent disposal.
Business continuation costs (wages, rent, stock, insurance) while the estate trades: deductible as ordinary business expenses of the estate.
NOT deductible by the estate: personal funeral costs, probate court filing fees (these are capital in nature and relate to the vesting of assets, not income production), and costs of distributing capital to beneficiaries.
Support schemes
ATO deceased estate administration guidance
Eligibility: Available to all legal personal representatives (executors and administrators) of deceased estates in Australia.
Small business CGT concessions on succession
Eligibility: Available where a CGT event occurs on an active business asset meeting the basic conditions (aggregated turnover under $2 million or net CGT assets under $6 million). Primarily triggered on actual disposal, not on the death rollover itself.
Buy-sell insurance arrangements
Eligibility: Business partners or co-directors with buy-sell agreements funded by life or TPD insurance policies.
Frequently asked questions
Does Australia have an inheritance tax or death duty?+
No. Australia abolished all inheritance and estate duties by 1979 at both federal and state level. However, tax still arises through capital gains tax on deferred gains (Division 128 ITAA 1997), income tax on super death benefits paid to non-tax dependants, and income tax on post-death business or investment income earned by the estate. The absence of an inheritance tax does not mean death is tax-free.
How is super taxed when paid to an adult child after death?+
An independent adult child is typically a non-tax dependant for super death benefit purposes. The tax-free component of the super balance is paid tax-free. The taxable component (taxed element) attracts 15% plus 2% Medicare levy (effective 17%). The untaxed element attracts 30% plus 2% Medicare levy (effective 32%). For a $500,000 balance with 60% taxed element and 40% tax-free component, the tax on the taxed element alone would be $51,000. Binding death benefit nominations directing payment to a tax-dependant spouse can eliminate this cost entirely.
What returns does the executor need to lodge?+
At minimum: a final individual tax return for the deceased covering 1 July to date of death, and a trust tax return for the deceased estate for each income year in which the estate derives income. If the deceased operated a business and it continues trading through the estate, BAS must also be lodged each quarter. The estate needs its own TFN. The final individual return uses normal individual rates. Estate trust returns use concessional individual rates for the first three income years on retained income, then risk s 99A top-rate assessment.
What happens to CGT when assets pass to a spouse under the will?+
Division 128 ITAA 1997 disregards any capital gain or loss when a CGT asset passes to a spouse (including de facto) as a result of death. The spouse inherits the deceased's original cost base and acquisition date for post-CGT assets. No CGT event occurs until the spouse later disposes of the asset. This full rollover treatment is critical where the spouse continues to carry on a business or hold investment assets. The gain can be substantial by the time the spouse sells, because it reflects appreciation across both lifetimes.