In my 35+ years selling property across Sydney’s Eastern Suburbs — from Bondi Junction to Dover Heights — I’ve watched families build extraordinary wealth inside the walls of the family home.
For decades, Australians have taken comfort in one simple belief:
“There’s no death tax in Australia.”
Technically, that’s correct. Australia abolished federal estate and inheritance taxes in 1979.
But in 2026, the landscape around inherited property — especially high-value homes — is far more complex. It is not a formal “death tax.” It is something subtler: capital gains tax consequences, stricter ATO administration, and policy debates around CGT reform.
For families inheriting prestige property in places like Dover Heights, Bellevue Hill or Rose Bay, the numbers can become significant if you misunderstand the rules.
Let’s break it down properly under current Australian law.
Under Subdivision 118-B of the Income Tax Assessment Act 1997 (Cth), a capital gain or loss from an inherited dwelling can be disregarded if:
The deceased acquired the property before 20 September 1985 (pre-CGT asset), or
The dwelling was their main residence and not used to produce income, and
The beneficiary sells it within two years of the date of death.
This two-year rule is often misunderstood as “automatic.” It is not.
The Australian Taxation Office issued Practical Compliance Guideline PCG 2019/5, which sets out when the Commissioner will allow an extension of the two-year period.
The ATO will generally allow extensions where delays are outside the executor’s control, such as:
A challenge to the validity of the will
Life tenancy or equitable interest issues
Delays in obtaining probate
Complex estate administration
However, the ATO has been clear: it will not grant extensions merely because:
The executor waited for the market to improve
Renovations were undertaken to maximise sale price
There was inactivity or delay without valid explanation
In Sydney’s prestige market, where estates sometimes “hold” property for strategic reasons, this distinction matters enormously.
This is where many beneficiaries make expensive assumptions.
If the property was the deceased’s main residence and not producing income at death:
Beneficiaries generally receive a market value cost base reset as at the date of death.
If sold within two years → typically no CGT.
If sold after two years → CGT applies only to the increase in value from date of death to sale.
If the property was:
Purchased after 20 September 1985, and
Used to produce rental income,
Then the beneficiary inherits the original cost base.
There is no market value reset.
This is where exposure escalates.
Let’s use a realistic Eastern Suburbs example.
Purchase price (1995): $1,500,000
Value at death (2026): $9,000,000
Sale price (2027): $10,000,000
If sold within two years of death and it qualified as the main residence:
CGT payable: $0
Cost base reset to $9,000,000 (value at death)
Sale price: $10,000,000
Capital gain: $1,000,000
50% CGT discount (if held > 12 months)
Taxable gain: $500,000
At the top marginal rate (47% including Medicare levy):
Approximate tax: $235,000
Original cost base: $1,500,000
Sale price: $10,000,000
Capital gain: $8,500,000
50% CGT discount
Taxable gain: $4,250,000
Potential tax exposure at 47%:
Approximately $2 million
This is not a “death tax.”
But it can feel like one if you are unprepared.
As of early 2026:
The 50% CGT discount for individuals remains in place.
There is no enacted federal legislation reducing it to 25%.
Periodic policy proposals surface, but no law has passed.
It is important not to confuse political discussion with enacted legislation.
In my view, relying on “proposed reforms” is dangerous — but so is assuming current settings will never change.
The UK applies Inheritance Tax at 40% above certain thresholds (with residence nil-rate band adjustments).
Large estates can face significant upfront tax liabilities.
Canada has no inheritance tax, but uses a “deemed disposition” rule.
Upon death, assets are treated as if sold at market value.
The estate pays CGT before beneficiaries inherit.
The US federal estate tax threshold is high (over USD $13 million per individual in 2026, subject to sunset provisions), but several states impose additional inheritance or estate taxes.
Compared globally, Australia remains relatively generous — particularly for genuine main residences.
In suburbs like:
Dover Heights
Bellevue Hill
Rose Bay
We are often dealing with:
30–40 years of capital growth
Original purchase prices under $1 million
Current values exceeding $10 million
The tax exposure is not theoretical.
It is arithmetic.
