You may have seen headlines about a “death tax by stealth” and new taxes on the trusts families use to pass on their wealth. Here is what has actually become law, what is still only a proposal, what is myth, and what it means for your will — in plain English.
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Few phrases cause more worry around the kitchen table than “death tax.” In recent months, talk of a “stealth death tax” — and of beneficiaries being taxed on what they receive from an estate — has been everywhere. If you have a family home, an investment property, or a will that sets up a trust for your children, it is natural to ask: is the government about to tax my family’s inheritance?
The honest answer is a bit of good news and a bit of “watch this space.” Let us separate what is settled law from what is only a proposal.
Australia does not have a death tax, estate duty or inheritance tax. The Commonwealth abolished estate duty in 1979, New South Wales’ own death duty applied to deaths up to 30 December 1981, and by 1984 all estate duties — state and federal — had been removed. You are not taxed simply for inheriting money or assets, and there is no tax on the act of receiving a gift under a will. As the Australian Taxation Office (ATO) puts it, whether tax applies depends on what you inherit and what you do with it — not on the inheritance itself.
Here is the part that surprises people. While there is no death tax, capital gains tax (CGT) has long operated as a kind of delayed tax on inherited assets — and this is not new.
When someone dies, passing their assets to their executor or beneficiaries usually does not trigger CGT at that moment. Instead, the tax is “rolled over” and deferred. There are two common exceptions worth knowing: where an asset passes to a foreign resident beneficiary, or to a tax-advantaged entity such as a charity or a complying super fund, CGT can apply to the deceased at the date of death. Both have carve-outs that often apply: the foreign resident rule does not catch taxable Australian property, so the family home left to a child overseas is generally safe, and a testamentary gift to a deductible gift recipient can usually be disregarded. If your will leaves assets to children living overseas or to a charity, raise it with your solicitor rather than assuming either way.
The catch is what happens later. For most assets the deceased bought on or after 20 September 1985, the beneficiary inherits the deceased’s original cost base — not the value at the date of death. So when the beneficiary eventually sells, CGT is calculated on the whole gain since the deceased first bought the asset.
There is an important exception that covers the most common case of all. Where the asset is a dwelling that was the deceased’s main residence and was not being used to produce income, and it passes to you after 20 August 1996, the cost base is generally its market value at the date of death. For many families the home is treated far more generously than the shares.
A simple example: your father bought shares for $100,000 many years ago. He dies and leaves them to you when they are worth $500,000. You pay no tax on inheriting them. But if you later sell them for $500,000, your capital gain is generally $400,000 — measured from his original $100,000, not from the value when you inherited them. That is the gross gain, not the amount you are taxed on: under the rules applying to gains accrued before 1 July 2027, the 50% discount would halve the taxable amount to around $200,000. None of this is a new “death tax” — it is how CGT has worked for decades.
The reason “death tax” is back in the headlines is the Federal Budget handed down on 12 May 2026. It announced what tax lawyers have called the most significant changes to the taxation of private wealth since CGT itself began. Two measures matter most for families and estates — and they are now at very different stages. The capital gains tax changes have become law. The trust changes have not.
This measure passed Parliament as the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, alongside the Income Tax Rates Amendment (Tax Reform No. 1) Act 2026. For gains accruing from 1 July 2027, the law will:
Importantly, the main residence exemption is not affected (the family home generally stays CGT-free), and there is no change to the CGT rules for superannuation funds. An exemption from the 30% minimum tax applies for recipients of certain government payments, such as the Age Pension or JobSeeker — but only if you receive a qualifying payment at some time during the financial year in which you realise the gain. The statutory list is broader than means-tested payments alone, so it is worth checking rather than assuming. Gains that accrued before 1 July 2027 keep the existing 50% discount, so the change bites on future growth rather than rewriting history.
The second measure is a 30% minimum tax on the taxable income of discretionary trusts from 1 July 2028. It would apply at the trustee level, with non-corporate beneficiaries receiving a non-refundable credit for the tax paid. In plain terms, it targets the long-standing practice of “income splitting” — distributing trust income to family members on lower tax rates. Because the credit is non-refundable, a beneficiary whose own tax rate is below 30% (broadly, taxable income under $45,000) could end up worse off.
Unlike the CGT changes, this one is not law — the ATO's own guidance says so in terms. Treasury released a consultation paper on the design on 8 July 2026, with submissions closing 31 July 2026, and draft legislation to follow. The Government has also flagged a time-limited restructure rollover, available for three years from 1 July 2027, to let assets be moved out of discretionary trusts into other structures.
This is the heart of the “death tax” concern, because a testamentary trust — a trust created by your will that comes into effect when you die — is one of the most common and useful estate-planning tools. It can protect assets and (until now) allow income to be shared tax-effectively among family members, including children, who are taxed at adult rates on that income.
Here is the important caveat: the trust measure is not law, and the treatment of discretionary testamentary trusts is not yet settled. The exemption announced in June 2026 is a policy announcement, not legislation, and consultation on the detail is continuing. The sensible position is not to assume either the old tax advantages or a blanket new tax until the final legislation and explanatory materials are released. If your will relies on a testamentary trust, this is the moment to get advice — not to panic, and not to ignore it.
That phrase comes from the political debate. Critics of the changes have used it of both the CGT and trust measures, while the Government frames them as removing long-standing income-splitting and CGT concessions rather than taxing death. Both descriptions are talking about the same measures.
Stripped of the politics, the practical picture is this: Australia is not introducing a formal death or inheritance tax, and you still will not be taxed just for inheriting. But from 1 July 2027 families will pay more CGT when they sell many inherited assets — the general 50% discount replaced by indexation and a 30% minimum tax, and pre-CGT assets losing their full exemption — and that part is now law. The trust changes, which could affect testamentary trusts, remain a proposal. For many families the CGT change alone is a real increase in the tax that flows from an estate, which is why the “stealth” label has stuck, even though it is not a headline death tax.
The distinction matters. The CGT rules are settled enough to plan around; the trust rules are not, and could still change before 2028.
While the death tax debate ran, a separate measure became law and has already started. Division 296 applies an additional tax to earnings on very large superannuation balances, and it commenced on 1 July 2026.
In its final form it is narrower than first proposed. It applies an extra 15% to earnings attributable to balances between $3 million and $10 million, and an extra 25% above $10 million. Both thresholds are indexed. Critically, the controversial proposal to tax unrealised gains was dropped — the tax now applies to realised earnings only. The first assessment covers the 2026–27 financial year, but assessments for that year are not expected to issue until the second half of 2027–28, and are generally payable 84 days after the notice issues — so the first bills land in 2028, not 2027.
There is also a death exception worth knowing: if you die during the 2026–27 income year, you are excepted from Division 296 tax for that year.
For estate planning this matters because superannuation is often the largest asset passing on death, and it does not automatically form part of your estate. If your balance is approaching these thresholds, the interaction between Division 296, your death benefit nominations and your will is worth reviewing together rather than separately.
You do not need to rush into anything. You do want to be informed and ready. Practical steps:
Michael Campbell Law is a boutique Hills District practice, and wills and estates is one of the areas Michael handles personally. We can review your existing will and estate plan, explain in plain English how the new capital gains tax rules and the proposed trust changes might affect your family, and — working alongside your accountant on the tax detail — make sure your arrangements still do what you want them to.
For clients across Baulkham Hills, Norwest, Castle Hill, the Hills District and Western Sydney, that means practical, up-to-date estate planning at a time when the rules are shifting. It also pairs closely with our guide on why your super may not be covered by your will, since superannuation is often directed into a testamentary trust. If you would like to review your plan, you are welcome to get in touch.
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Updated 30 July 2026. This article is general information only and is not legal or tax advice. It describes the position as at 30 July 2026: the capital gains tax measures from the 2026–27 Federal Budget are now law and commence 1 July 2027, while the 30% minimum tax on discretionary trusts remains announced but not yet law and may change. Tax outcomes depend on your specific circumstances — for advice about your situation, contact Michael Campbell Law and a registered tax adviser.
No. Australia has no death tax, estate duty or inheritance tax. The Commonwealth abolished estate duty in 1979 and New South Wales' own death duty applied to deaths up to 30 December 1981, with all state and federal estate duties gone by 1984. You are not taxed simply for inheriting money or assets. Other taxes can still arise after a death, most importantly capital gains tax when an inherited asset is later sold, and the 2026 Federal Budget changed how that tax is calculated from 1 July 2027.
Generally you do not pay tax just for receiving an inheritance. You may pay income tax on income you are entitled to from the estate, and capital gains tax when you later sell an inherited asset, because you often inherit the deceased's original cost base rather than the value at the date of death. There is an important exception: for a dwelling that was the deceased's main residence and was not producing income, the cost base is generally its market value at the date of death.
These changes are now law. They were enacted in June 2026 and apply to gains accruing from 1 July 2027, when the 50% CGT discount is replaced with cost base indexation plus a minimum 30% tax on capital gains. Assets bought on or before 19 September 1985 stop being exempt for gains accruing after that date. The main residence exemption is not affected, and gains that accrued before 1 July 2027 keep the existing 50% discount.
The 30% minimum tax on discretionary trust income is proposed to start on 1 July 2028 and is not yet law. Deceased estates and fixed testamentary trusts are excluded. In June 2026 the Government announced the exemption would extend to all testamentary trusts, including future discretionary ones, where they are established for genuine testamentary purposes. The detail is still being settled through Treasury consultation, so get advice before relying on a testamentary trust in your will.
Death tax by stealth is a political description used in the debate about these changes. It is not a formal death or inheritance tax, and receiving an inheritance is still not taxed. But the capital gains tax changes will increase the tax paid when some inherited assets are sold, and the proposed trust measure could reduce the advantages of some testamentary trusts. The Government frames the measures as removing income-splitting and CGT concessions.
A review is worthwhile, but do not rush. The capital gains tax changes are now law and start on 1 July 2027, so they are settled enough to plan around. The trust measure is still only announced and could change. Review your will and estate plan with your solicitor and accountant so you understand your options, rather than making irreversible decisions on rules that are not yet final.
Wills and estates are handled personally by Michael. If you would like to review your estate plan in light of these changes, you are welcome to book a free, no-obligation 15-minute call.