Australia doesn’t have an inheritance tax – at least, not officially. But heading into 2026, the debate is heating up again, and financial advisers would be wise to pay attention.
While many Australians assume their estate planning is simple in a country without death duties, the reality is far more complex. The largest intergenerational wealth transfer in history – estimated between $5.35 and $8.26 trillion – is already underway.
That scale has reignited calls for reform and prompted policymakers to look at untapped sources of revenue.
For advisers, this isn’t an abstract debate. It’s a potential shift in how wealth is taxed, transferred and perceived, and it could redefine how we guide clients through estate, superannuation and intergenerational planning.
Why the inheritance tax conversation is back
After four decades of silence, the “death tax” debate is back on the agenda. Several converging forces – fiscal strain, wealth concentration and inequality – are driving it.
1: A tight fiscal outlook
Australia’s structural budget pressures are mounting. Despite being a relatively low-tax economy, the demands on government spending – defence, healthcare, aged care, housing and infrastructure – are ballooning.
As the Australia Institute notes, policymakers across party lines face a simple arithmetic problem: there’s not enough revenue to meet long-term commitments without reform. Their research identifies wealth taxation as a “missing pillar” in Australia’s system – a potential $107 billion opportunity.
2: The baby boomer wealth transfer
The Cambridge University Press describes intergenerational wealth transfer as one of the most powerful (but least discussed) drivers of inequality. In Australia, baby boomers hold more than $7 trillion in assets, mostly in property and superannuation.
This transfer, largely untaxed at death, will reshape the nation’s financial landscape over the next two decades. And the public narrative is shifting from “earned income” to “inherited advantage."
3: Calls for “fairness” and reform
Advocates such as the Australia Institute and Anglicare Australia argue that taxing large inheritances could help fund essential services and narrow intergenerational divides.
Globally, 24 of 38 OECD nations – including France, Germany, Japan, the UK and the US – already levy some form of inheritance or estate tax. Australia remains an outlier.
Proposals generally target only the wealthiest 5% of estates (valued above around $7.5 million), suggesting potential annual revenue of $15 billion even if family homes and super balances were excluded.
How inheritance is already taxed in practice
Despite the absence of formal inheritance tax since 1979, wealth transfers in Australia are not tax free. Advisers should ensure clients understand the web of indirect taxes that apply at or after death.
These include:
Capital gains tax (CGT)
While beneficiaries don’t pay tax on what they receive, CGT may apply once they sell or dispose of an inherited asset. The ATO rules distinguish between:
- Pre-20 September 1985 assets: Generally CGT-free.
- Post-1985 assets: The cost base transfers to the beneficiary, and CGT is deferred until disposal.
A main residence exemption can apply if the property is sold within two years of death, and the CGT discount can further reduce liability.
Superannuation death benefits
Super is the quiet zone where inheritance tax already exists “by stealth.”
Per a paper written by Dr. Brett Davies and published in FS Advice, tax treatment depends on the relationship between deceased and beneficiary:
- Tax dependants (spouse, minor children, interdependent relationships): lump sums are tax-free.
- Non-dependants (typically adult children):
- 15% on the taxed element
- 30% on the untaxed element
- Plus the 2% Medicare Levy if paid directly from the fund.
These effective rates (17% and 32%) often surprise families – and for larger balances, they can rival an inheritance tax in impact.
The case for (and against) reintroduction
The economic case: fairness and efficiency
According to OECD data, inherited wealth now represents over half of all private wealth in many developed economies. Without intervention, that concentration accelerates.
The Australia Institute paper referenced above estimates a reintroduced tax similar to Australia’s pre-1979 system (which raised 0.36% of GDP) could again yield around $15 billion annually – with minimal drag on productivity.
The University of Queensland AIBE also highlights that inheritance taxes are among the most efficient forms of taxation, as they have little impact on work incentives or consumption behaviour.
The political case: still toxic
Despite the logic, the politics remain brutal. Inheritance tax is one of the least popular measures globally.
During the 2019 federal election, viral “death tax” misinformation campaigns spread via social media; these claims were debunked by the ABC and The Guardian. The episode left lasting political scars.
As Grattan Institute CEO Danielle Wood notes, even a modest proposal would be “heinously unpopular.” The phrase “tax on love” still resonates more powerfully than any economic rationale.
Designing a modern approach
If the political climate ever allows for reconsideration, advisers should expect a very different structure to the “death duties” of the past.
High thresholds and exemptions
Proposals would almost certainly exclude middle Australia. The Australia Institute recommends targeting only estates above $7.6 million (the top 5%), while others suggest a lower threshold of $3 million.
The principle is simple: protect ordinary families, tax concentrated wealth.
Progressive rates and relationship tiers
Fifteen OECD countries already use progressive rates that rise with estate value. Many differentiate between close family members and distant relatives or non-family recipients – a structure designed to reflect the personal nature of inheritance while discouraging large, non-family wealth transfers.
Gift tax and avoidance controls
To prevent circumvention through early gifting, complementary gift tax rules are standard internationally. Most systems provide annual exemptions but cap their use to avoid unlimited pre-death transfers.
Offsetting income tax cuts
Some economists propose using inheritance-tax revenue to offset other taxes – particularly those that discourage productive activity. As one tax policy commentator quipped, it may be “better to pay more when dead than while alive.”
That framing could make reform more politically palatable if ever reintroduced, especially if it reduces pressure on income tax or payroll tax rates.
What advisers should do now
Even if Australia doesn’t introduce an inheritance tax soon, the themes driving the debate are already reshaping policy priorities. Advisers should act early, not react late.
1: Stress-test client structures
Review how intergenerational wealth would move under current CGT and superannuation rules. For high-net-worth clients, model potential exposure under different reform scenarios – especially those with complex asset mixes or large SMSF balances.
2: Revisit beneficiary strategy
Help clients clarify who their dependants are under ATO definitions, and whether their super benefits are structured to avoid unintended tax outcomes.
3: Focus on estate liquidity
Many inheritances are property-heavy and cash-light. Ensuring liquidity – through insurance, investments or trust structuring – can mitigate forced sales if tax obligations change.
4: Educate clients on policy context
This is a chance for advisers to lead with perspective, not panic. Most proposals discussed would target only the very wealthy. For 95% of Australians, the primary concern will be whether their legacy is well-structured and tax-efficient under existing rules.
5: Frame the conversation around legacy
At Inspired Money, we often remind clients that estate planning is less about death and more about direction. Whether or not inheritance tax ever returns, families still need clarity on how wealth reflects their values – not just their balance sheet.
The bottom line
Inheritance taxation will remain one of the most politically charged yet economically logical conversations in Australian policy.
Even without new legislation, advisers should treat it as an inflection point – a signal that tax policy is pivoting from income to assets, and that wealth transfer strategies deserve renewed attention.
The smart play? Anticipate, educate and structure ahead of change. Because whether inheritance tax ever returns or not, the real risk is being unprepared when the rules – or the rhetoric – shift again.
Advisely Contributor
