Estate Tax and Your Legacy
Estate planning is about more than deciding who receives your assets after you die. A good plan also considers how those assets will pass to your family, who will manage them and whether tax or legal complications could reduce what ultimately reaches your beneficiaries.
Australia does not generally have a separate inheritance or estate tax simply because someone dies. That does not, however, mean tax disappears at death. Capital gains tax (CGT), tax on income earned by a deceased estate and the taxation of trusts can all play a part.
This area is also undergoing significant change. Some CGT reforms announced in the 2026–27 Federal Budget have already become law, while on 4 August 2026 the Government released further draft legislation dealing with trusts, deceased estates and other CGT issues. Importantly, these latest measures are exposure draft proposals and may change before becoming law.
Your Ownership Structure May Be More Powerful Than Your Will
One of the most useful estate-planning exercises is surprisingly simple: check whose name is actually on your assets.
For property owned as joint tenants, a deceased owner's interest will generally pass automatically to the surviving joint owner. It does not ordinarily become an estate asset that can be redirected through the Will. By comparison, when property is held as tenants in common, the deceased's individual share generally becomes part of their estate and can be dealt with under their Will.
This can be particularly important for blended families. For example, someone may want their spouse to remain in the family home while ultimately preserving its value for children from an earlier relationship. Depending on the circumstances, joint ownership, an outright gift or a carefully drafted right to occupy the property could produce very different outcomes.
A right to occupy also needs practical rules. Who pays the council rates? What about insurance, repairs and major maintenance? When does the right end? These details may seem mundane, but leaving them unanswered can create exactly the sort of family disagreement an estate plan is supposed to prevent.
Changing ownership is not something to do casually because CGT, transfer duty and other legal consequences may arise. The practical lesson is to review your property titles, Will and intended beneficiaries together.
The CGT Rules Around Death Are Changing
Under the existing rules, transferring many assets from a deceased person to their legal personal representative or an Australian resident beneficiary generally does not trigger an immediate capital gain or loss. Instead, CGT commonly becomes relevant when the asset is eventually sold.
The reforms commencing from 1 July 2027, however, change the broader CGT landscape. The existing 50% CGT discount is generally being replaced by cost-base indexation for gains accruing from that date, alongside a 30% minimum tax on certain capital gains. The reforms also bring gains accruing after 30 June 2027 on formerly pre-CGT assets into the new system.
On 4 August 2026, the Government released draft legislation which attempts to clarify how these reforms interact with death. For relevant assets inherited following a death, the proposed rules can treat a legal personal representative, beneficiary or surviving joint tenant as having acquired the asset when the deceased originally acquired it. This is important because it can preserve access to the existing CGT discount methodology for the portion of a gain attributable to the period before 1 July 2027. The draft legislation contains specific acquisition-time rules for deceased estates, beneficiaries and surviving joint tenants.
Pre-CGT assets require particular care. Under the draft, where the deceased held an asset that was a pre-CGT asset immediately before death, the recipient is generally treated as acquiring it at the deceased's death rather than tracing the acquisition date back to the deceased's original purchase.
There are still technical questions around how the transition will operate in some circumstances. That is a good reason not to make irreversible estate-planning decisions based solely on the exposure draft.
Your Family Home Still Deserves Special Attention
The family home can receive valuable CGT concessions, but inheriting a home does not automatically guarantee that every future sale will be tax-free.
The outcome can depend on when the deceased acquired the property, whether it was their main residence, whether it had previously been rented, what happens to it after death and when it is eventually sold.
Under existing rules, an executor or beneficiary can, in qualifying circumstances, disregard a capital gain on an inherited dwelling where the sale settles within two years of the owner's death. Settlement, rather than merely signing a sale contract, is an important part of the timing.
Extensions may be available where circumstances outside the executor's or beneficiary's control delay the sale, such as estate litigation or complications with the administration. Simply holding on because the family hopes property prices will improve is a rather different proposition.
Retirees receiving an inherited property should also consider more than CGT. Keeping a second property may affect eligibility for the Age Pension and other means-tested benefits, while rent received from the property can also have consequences.
The practical conversation therefore needs to happen early: will the property be sold, retained as an investment or occupied by a beneficiary?
Testamentary Trusts Could Receive Important Protection
One particularly relevant feature of the 4 August draft concerns testamentary trusts and deceased estates.
The Government proposes to exempt qualifying capital gains arising through genuine testamentary trusts, deceased estates and special disability trusts from the new 30% minimum tax on capital gains. The explanatory memorandum says the concession for testamentary trusts is intended to apply to qualifying gains ultimately arising from assets of the deceased estate, with integrity rules designed to prevent unrelated assets being added simply to obtain favourable tax treatment.
There is an important distinction.
If an asset belonging to the deceased is sold within the deceased estate or an eligible testamentary trust, a qualifying gain flowing to a beneficiary may receive the proposed exemption from the 30% minimum tax. However, if the asset itself is first transferred to an individual beneficiary and that beneficiary later sells it, their personal capital gain does not receive the testamentary-trust exemption merely because the asset originally came from the trust. The explanatory memorandum expressly distinguishes gains arising through the trust from a beneficiary's later realisation of assets received from it.
That difference could make the question of who sells an asset and when more important after 1 July 2027.
It does not mean an estate should automatically sell assets rather than distribute them. Tax is only one consideration, and beneficiaries' circumstances can differ substantially. It does mean executors and families may benefit from obtaining tax advice before deciding whether valuable shares, investment properties or other appreciated assets should be sold or transferred directly to beneficiaries.
Estate Plans Should Not Be Left on Autopilot
The emerging rules reinforce an old lesson: estate planning works best when your Will, asset ownership, tax position and beneficiaries are considered together.
Older Australians with long-held shares, investment properties, business interests or assets purchased before September 1985 have particular reason to review their arrangements before the new CGT regime begins. Executors will also need to understand the tax consequences before distributing assets, rather than discovering them after the paperwork has been signed.
The aim is not to predict every future tax rule. It is to build enough flexibility into your estate plan that your family has sensible options when the time comes. After all, a legacy should ideally contain more memories than tax surprises.
Facts and Rules May Change
This article reflects the available information as at 7 August 2026. Some elements of the 2026–27 CGT reforms have been enacted, including reforms receiving Royal Assent on 26 June 2026, while the tranche-two measures released on 4 August 2026 remain exposure draft legislation and may be amended, withdrawn or supplemented following consultation. The draft explanatory memorandum itself notes that further work is intended on some complex CGT interactions. Taxation rules, CGT concessions, Centrelink treatment and State or Territory succession and transfer-duty laws can also change. Current taxation, legal and financial advice should therefore be obtained before changing ownership arrangements, administering an estate or implementing an estate plan.
The information provided in this article is general in nature and has been prepared without considering your personal objectives, financial situation, or needs. It does not constitute financial advice. Before making any decisions, you should assess its appropriateness and seek professional financial advice tailored to your circumstances. Additionally, ensure you review the relevant Product Disclosure Statement (PDS) before deciding on any financial product.