Knowledge Article · Inheritance & Estate Planning

Australian CGT: why it crystallises the moment you die — not when your heirs sell

Australia has no inheritance tax. But CGT on deemed disposal at death is not automatically deferred when your heirs live outside Australia — and the bill arrives before probate is complete.

“Australia has no inheritance tax” is technically correct. It is also dangerously incomplete for the millions of Australians with children, siblings, or other beneficiaries who live outside Australia. The capital gains tax position on death is fundamentally different depending on whether beneficiaries are Australian residents — and the difference is the difference between deferred CGT and CGT assessed on the day of death.

Principle 01 — The general rule: CGT is deferred

For an Australian tax resident who dies and leaves assets to Australian-resident beneficiaries, CGT on the inherited assets is generally deferred. The beneficiary inherits the asset at the deceased’s original cost base and pays CGT only when they eventually sell. For a property bought for $300k that is worth $900k at death, the CGT on the $600k gain is not payable on death — it waits until the beneficiary sells.

Principle 02 — The critical exception: foreign-resident beneficiaries

When an Australian tax resident dies and assets pass to a foreign-resident beneficiary, the deferral is lost under s.104-215 ITAA 1997. CGT is assessed on the deceased’s final tax return at the date of death, at the market value of the asset on that date. The full gain since original acquisition is crystallised in the year of death — before probate begins, before any sale, before any foreign succession process has started.

Principle 03 — The timing problem

The CGT crystallises on the date of death and is payable as part of the deceased’s final tax return. This creates a severe cash flow problem for many estates:

• The property cannot be sold until the foreign succession process is complete (French succession tax paid, BIR clearance obtained, Indonesian notarial process resolved)
• The foreign-resident heirs cannot access the proceeds until their country’s succession processes are complete
• The Australian CGT is payable on a specific date regardless of how long those foreign processes take
• If the estate has insufficient liquid assets in Australia to fund the CGT payment, the executor faces a difficult position

Principle 04 — No credit mechanism for most corridors

Australian CGT on death and the inheritance taxes of most countries are different types of taxes on different events. Australian CGT taxes gains accrued over the deceased’s ownership period. French succession tax taxes the heir on their received share. UK IHT taxes the net estate at death. These are not the same tax, on the same asset, at the same event — so the cross-credit mechanisms under most unilateral relief rules do not apply cleanly.

Principle 05 — Australian superannuation

Superannuation does not form part of the Australian estate for succession purposes — it passes directly to nominated beneficiaries or at the trustee’s discretion. However, for Australian tax purposes, death benefits paid to non-dependant beneficiaries (adult children who are financially independent — common when the heirs are foreign-resident) are taxed at up to 17% on the taxable component (15% tax plus Medicare levy). Foreign-resident adult children are almost never Australian tax dependants.