CGT and Inherited Property in Australia

A plain English guide to when Capital Gains Tax applies to inherited property — and the rules every beneficiary should know.

Quick Summary

Inheriting a property is one of the most common ways Australians come into significant wealth — and one of the most misunderstood corners of the CGT system. The rules can sound intimidating ("pre-CGT", "cost base reset", "the 2-year rule") but they boil down to a few clear principles. Get them right and the difference can be tens of thousands in tax saved.

The First Important Fact: Inheritance Isn't a CGT Event

When you inherit a property, no CGT is triggered at the moment it passes to you. The estate transfer is not a CGT event in itself. You become the owner with a particular cost base attached to the property, and CGT only enters the picture when you later sell, give away, or otherwise dispose of it. This is set out by the ATO on its inherited assets and CGT page.

Pre-CGT vs Post-CGT Property

Everything in Australian CGT splits on one date: 20 September 1985, when CGT was introduced. Properties the deceased acquired before that date are "pre-CGT". Properties acquired on or after are "post-CGT". The cost base treatment is very different.

When deceased acquiredCost base you inheritEffect on future gain
Before 20 September 1985 (pre-CGT)Market value on date of deathAll the deceased's gain is wiped out — you only pay CGT on growth from date of death
On or after 20 September 1985 (post-CGT)The deceased's original cost base (plus any improvements they made)You inherit any unrealised gain built up during their ownership

That pre-CGT reset is enormously valuable — and getting rarer as time passes. A property bought in 1980 for $40,000 and now worth $1.5m would have an inherited cost base of $1.5m, meaning zero CGT on sale at that price. A post-CGT property purchased in 2000 for $300,000 and now worth $1.5m would carry that original $300,000 cost base forward to the beneficiary.

The 2-Year Main Residence Exemption

If the inherited property was the deceased's main residence (and was not being used to produce income at the date of death), and you sell it within 2 years of their death, the gain is fully CGT-exempt — regardless of what happens to the value in those two years. This is one of the most generous concessions in the system and the reason many beneficiaries sell promptly.

The 2-year clock starts at date of death, not at the date probate is granted or at the date of transfer to you. The ATO will extend this period in limited circumstances — protracted will disputes, complex estates, or the property being unable to be sold despite reasonable efforts. Extensions are not automatic; you apply.

If you miss the 2-year window, the exemption can still apply for the period it was the deceased's main residence, but the portion of the gain that accrued after the 2-year mark is potentially taxable.

What If You Move In Yourself?

If you make the inherited property your own main residence, the exemption can continue to apply from that point. The combination of the deceased's main residence period and your own main residence period can result in a fully exempt sale, even years after inheritance. The 2-year rule is a fallback for when the property isn't continuously a main residence — it's not the only path.

The 50% CGT Discount and Holding Period

If the gain is taxable, the 50% CGT discount usually applies because the deceased's ownership period counts towards the 12-month rule. The discount is in place until 1 July 2027, when it's replaced for new acquisitions by CPI cost base indexation plus a 30% minimum tax under the 2026-27 Budget CGT reforms. Inherited property is grandfathered — the discount continues to apply on sale of property already in the estate.

Foreign Resident Beneficiaries

If you're a foreign resident at the time the deceased dies, additional rules apply that can deny the main residence exemption on inherited property. This is a complex area and worth specialist advice if it applies to you.

Practical Checklist for Beneficiaries

  1. Confirm whether the property is pre-CGT or post-CGT — look at the original purchase contract date. Anything before 20 September 1985 is pre-CGT.
  2. Get a market valuation as at the date of death — essential if the property is pre-CGT or if you might later move in. A licensed valuer's appraisal stands up; a real estate agent's rough estimate may not.
  3. Decide on the 2-year exemption strategy early — if selling within 2 years gets you a clean exemption, that's a strong financial reason to act within that window.
  4. Keep records of any costs you incur — repairs to prepare for sale, legal fees, agent commissions. These become part of the cost base if the sale is taxable.
  5. Talk to a tax professional if the property has been used partly for income, the deceased's main residence status is unclear, or the estate is large enough that planning matters.

Frequently Asked Questions

Not at the moment of inheritance — receiving the property is not itself a CGT event. CGT only crystallises when you sell, dispose of, or stop using the property as a main residence. The cost base you'll use when calculating any future gain depends on whether the deceased acquired the property before or after 20 September 1985.

If the deceased's main residence was a post-CGT property (acquired on or after 20 September 1985) and you sell it within 2 years of their death, the gain is fully CGT-exempt. The 2-year period can be extended by the Commissioner in limited circumstances such as legal disputes over the will.

For pre-CGT property (deceased acquired before 20 September 1985), the cost base resets to the market value on the date of death. For post-CGT property, you inherit the deceased's existing cost base, plus any incidental costs you incur. The main residence exemption may further modify this.

Yes. The deceased's ownership period counts toward the 12-month rule, so most inherited assets satisfy the holding period immediately. The 50% discount applies on sale until 1 July 2027, when CPI indexation and the 30% minimum tax replaces it for assets acquired after that date — existing inherited assets are grandfathered.

You inherit the deceased's cost base. When you eventually sell, any gain from the time you held it plus the gain that built up while the deceased held it is potentially taxable, subject to the 50% CGT discount.
Disclaimer: This article provides general information about CGT and inherited property in Australia and is not financial or tax advice. Inheritance, estate and CGT rules are complex and individual circumstances vary. Refer to the official ATO website for the latest information, and consult a qualified tax professional or solicitor for advice on your specific situation.

Related Articles & Calculators

Understanding Capital Gains Tax — the broader CGT explainer The 50% CGT Discount Explained CGT Cost Base — what counts and common mistakes CGT Changes to the Family Home — main residence exemption explained Tax Return Calculator — estimate your annual tax Estate Planning Basics — wills, super nominations and powers of attorney so the right people inherit