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Death and taxes - understanding inheritance in Australia

Financial Planning  |  8/05/2019  |   7 min read

They say nothing is certain but death and taxes. So let’s look at the actual rules around estates taxes, superannuation, and what happens to assets when they’re distributed to family and friends following a death.

Talk of an estate tax (also known as a death taxes in some circles) has popped up during the election campaigning. While there’s no evidence to suggest such a tax is being considered on either sides, it does raise questions about estates, inheritance, death and taxes.

Australia is an outlier, in that we don’t currently have any kind of estate tax. Whatever assets are passed down to family members, whether that’s property, cash, shares or otherwise, is exempt from any direct tax.

The caveat is that any change to a person’s financial position following on from an inheritance will be subject to the usual taxes, including interest earned, capital gains, etc. So if you inherit a share portfolio, or a sum of cash that generates interest, you’ll be obliged to pay the relevant taxes on any earnings it generates.

Things get more complicated when it comes to superannuation and death. There various rules around the distribution of assets - and just as many exemptions. But before we delve too deep, let’s look at the history of estate taxes, and why Australia has such a unique system.  

A short history lesson

Australia had an estate tax until 1979. But when QLD premier Joh Bjelke-Petersen abolished all inheritance and gift taxes in the mid-70s to attract interstate migrants, the Federal Government responded by abolishing those same tax nationally.  

Fast forward four decades, and the least popular tax policy in Australia is poking its head over the parapets again. The Henry tax review, in a proposal that was promptly rejected by both the ALP and the Coalition in 2010, said there were major reasons to consider what it termed a bequest tax.

It found "large asset accumulations" ended in the hands of a relatively small number of people, and that bequests were likely to rise from $22 billion in 2010 to $85 billion in 2030.

More recently, the Grattan Institute’s budget policy director, Danielle Wood, has said that, “A person earning $100,000 a year in wages or salary pays a little over $26,000 in income tax. A person who received a $100,000 inheritance from a deceased family member does not pay a cent of tax.”

She did add that any estate tax policy was "heinously unpopular" at the ballet box. Which means there’s very little political will to review the current arrangement.  

Around the world

Other western nations have maintained estate taxes of varying amounts. The top four nations for estate tax are outlined below.

Ranking Country Tax rate
1. Japan 55%
2. South Korea 50%
3.  France 45%
4. United Kingdom 40%
4. United States 40%


Those numbers don’t tell the whole story. In the US an estate tax only applies to sums over $11 million (USD), which means only about 2000 deceased estates are impacted per year. On the other end of the spectrum the UK applies an estate tax on any estates above £325,000 (GBP)and imposes a 40% tax on any sums above that threshold.

The OECD average is 15%, but again, that number becomes quite fuzzy when you take into account various thresholds.

Planning for the future

Australia may not have an estate tax, but the distribution of wealth after someone’s passing can still have significant impact on the beneficiaries. This includes tax implications from additional income as well as capital gains from the sale of assets.

In some instances superannuation inheritances may also be taxed. While there’s no tax when super is transferred from one deceased partner to another, the rules get murkier when it comes to non-dependents, e.g. children over 18. In these scenarios super may be taxed at either 15% or 17% based on the estate planning done beforehand. 

Speaking to a qualified financial planner can help you better understand your options, and the most appropriate way to distribute your assets.

Like to know more about inheritance, assets and taxes? Speak with an Equip Financial Planner and enjoy the peace of mind that comes with an informed decision.

This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383.  MySuper Authorisation Numbers 33813823017672 and 33813823017518  (‘Equip’, ‘the Fund’ and ‘the Equip Rio Tinto Fund’).

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