CGT on Inherited Property in Australia: How the Rules Work

Do you pay CGT on inherited property in Australia?

You do not pay CGT on inherited property simply because you inherit it. Capital gains tax generally applies only when you sell, or otherwise dispose of, the property. Whether tax is payable then depends on when the original owner acquired it, whether it was their main residence, and how long you hold it before selling.

This is why CGT on inherited property is often misunderstood. The outcome can range from no tax at all to a significant liability, and the difference usually comes down to a few specific rules and the records you keep.

What is the two-year rule for an inherited home?

If the deceased person's home was their main residence just before they died, and was not being used to produce income, the main residence exemption can apply to your sale. In general, you can disregard the gain entirely if the sale settles within two years of the date of death.

The Commissioner of Taxation has discretion to extend the two years in some circumstances, for example where the estate is delayed by a legal challenge to the will or by complex administration. An extension is not automatic, and the request should be supported by evidence.

The exemption can also apply beyond two years if the property was occupied as a main residence by certain people from the date of death until sale, such as the surviving spouse or a person who had a right to occupy the home under the will.

How is the cost base worked out on an inherited property?

The cost base depends on when the deceased person acquired the property.

If they acquired it before 20 September 1985, it is a pre-CGT asset. You are generally treated as acquiring it at its market value on the date of death, and that becomes your cost base. If they acquired it on or after 20 September 1985 and it was not their main residence, you generally inherit their original cost base and acquisition date. If it was their main residence just before death and was not producing income, the cost base is generally its market value at the date of death.

In both situations, a market valuation at the date of death is important. It is far easier to obtain one at the time than to reconstruct it years later. Keep it with the estate documents, together with records of any capital improvements you make afterwards.

Does the main residence exemption apply if I move in?

It can. If you move into the inherited property and treat it as your main residence, the main residence exemption may apply to your own period of ownership. You can only have one main residence at a time for most purposes, so if you own another home, you will need to consider which one you nominate.

Moving in also affects the cost base, and some of the special rules differ if the property was purchased before 20 September 1985. This is an area where a short conversation before you decide can prevent an expensive surprise.

How does the six year rule CGT concession apply?

The six-year absence rule lets you continue to treat a property as your main residence for up to six years after you move out, if you rent it out during that time. If you do not rent it out, the period can be unlimited, provided you do not treat another property as your main residence in the meantime.

For inherited property, this becomes relevant if you move in first and then relocate. The six year rule CGT concession can keep the gain exempt for the period you were away, and a new six-year period can start if you move back in. You must choose the property as your main residence and not claim another property for the same period.

Can I get the CGT discount on an inherited property?

Currently, an individual who owns an asset for at least 12 months and makes a capital gain may be able to reduce the gain by 50 per cent. The 2026–27 Federal Budget on 12 May 2026 announced that, from 1 July 2027, the 50 per cent CGT discount for individuals would be replaced by cost base indexation with a 30 per cent minimum tax. The announced changes, their transition rules and their legislative status have been developing, so confirm the current position on ato.gov.au or with your tax agent before you buy, hold or sell.

For inherited property, the 12-month holding period generally runs from the date of death where the property was pre-CGT or was the deceased's main residence. In other cases, it generally counts from the date the deceased acquired it.

The discount is not available to companies. It works differently for trusts and superannuation funds, so the ownership structure matters. If you are a foreign resident, the rules are more restrictive, so please obtain advice.

What does this look like in practice? An illustrative example

The following is a simplified example only and does not describe a real client. Assume a parent purchased a home in 1995 and lived in it until death. The home was valued at $900,000 at the date of death. The beneficiary sells 18 months later for $950,000.

Because the home was the deceased's main residence and the sale settled within two years, the main residence exemption would generally apply and no CGT would be payable on the $50,000 difference.

If the same sale settled after three years with no extension and no other exemption, the cost base would be $900,000 and the $50,000 gain would generally be assessable, potentially with the 50 per cent discount applying. Selling costs and holding costs may also be taken into account, depending on the situation.

Talk to a Sydney tax agent before you sell

ANH Accounting is a Sydney advisory firm established in 2018 and a Registered Tax Agent (RN 26258346). If you have inherited a property, or are managing an estate, we offer a free 30-minute session to talk through your position and the timing of any sale. Please bring the date of death and any valuations you hold.