As accountants we work closely with small to medium businesses every day, we often see clients inherit property and assume it’s “tax-free” or something they can deal with later.
Unfortunately, that assumption can be costly.
Inheriting property in Australia can sit anywhere on the spectrum from completely CGT-free to unexpectedly expensive, depending on what you do next, how the property was used, and how the estate is structured. We regularly see people fall into avoidable tax traps simply because they didn’t get advice early enough.
Here’s what you need to know before making any decisions.
The biggest myth: “Inherited property isn’t taxed”
This is one of the most common misunderstandings we hear.
While it’s true that you don’t pay CGT just because you inherit a property, capital gains tax often becomes relevant when the property is sold, transferred, or dealt with through a trust. The outcome can vary significantly depending on timing and use.
The 2-year rule: where many people slip up
If the deceased person lived in the property as their main residence and it wasn’t being rented out, the property can often be sold CGT-free — but only if it’s sold within two years of the date of death.
This sounds straightforward, but in practice we see issues arise when:
- Estate administration drags on longer than expected
- Family members delay selling “until the market improves”
- The property is rented out temporarily
Once that two-year window is missed, the CGT exemption can be lost unless special circumstances apply. While the ATO can grant extensions, they are not automatic, and relying on one is risky.
Renting the property can change everything
Another common trap is renting out the inherited property without understanding the tax consequences.
If the property was the deceased’s main residence, renting it after inheritance may reduce or eliminate the CGT exemption when it’s eventually sold. We often see clients rent the property for short-term cash flow, only to face a much larger tax bill years later.
What looks like a sensible short-term decision can have long-term tax consequences if it’s not planned properly.
Trusts: where things get more complex
If the inherited property is held in a trust, the rules change again.
In some trust situations, transferring the property to a beneficiary can trigger a CGT event, even if the property isn’t sold. This can result in tax becoming payable before any cash is actually received — a scenario that catches many families off guard.
This is one of the clearest examples of why estate planning and tax planning must work together. We regularly help clients navigate these scenarios to avoid unnecessary tax and cash-flow stress.
Why a date-of-death valuation is critical
Whether a property is pre-CGT (before 20 September 1985) or post-CGT has a major impact on how capital gains are calculated.
In many cases, the cost base of the property is determined by its market value at the date of death. Without a proper valuation, you may struggle to support your CGT position later — potentially costing tens of thousands of dollars.
This is one step that should be done early and properly. It’s not something you want to try and reconstruct years down the track.
What we recommend before you do anything
Before selling, renting, or transferring an inherited property, we strongly recommend:
- Confirming how the property is owned (individual vs trust)
- Understanding whether the main residence exemption applies
- Identifying the relevant CGT deadlines
- Obtaining a date-of-death valuation
- Planning the timing of any sale in line with your broader tax position
At RA Business Advisors we specialise in working with our clients and help them to navigate tax issues when they arise. With the right advice, many of these tax traps can be avoided entirely.
If you’ve inherited a property, or think you might, contact us for clear, practical guidance. One brief conversation can save you stress, time, and costly mistakes down the line.