Is Australia Moving Towards an Inheritance Tax?

Byadmin

A familiar debate is resurfacing in Australian tax policy circles – whether it’s time to bring back an inheritance tax or introduce a levy on unrealised capital gains. With governments under pressure to fund services for an ageing population, the idea of “taxing wealth, not work” is gaining traction.

A Look Back: Death Duties in Australia

Until the late 1970s, Australia had both state-based “death duties” and a federal estate tax. Combined, these could strip more than half the value of an estate. Even modest family homes were caught, and farms were often forced to sell land to cover tax bills. By the mid-1970s, public anger and widespread avoidance strategies led to the abolition of these taxes.

Overseas Comparisons

Australia is one of the few developed countries without an inheritance or estate tax. The UK, for example, taxes estates above £325,000 (around AUD $620,000) at a rate of 40%. Lifetime gifts can also be caught, unless the giver lives seven years beyond the transfer. These rules add significant complexity to estate planning.

Early Signs of Change in Australia

While no inheritance tax has been formally proposed, several recent developments suggest a shift towards wealth-based taxation:

  • Victorian probate fees now scale with estate value, reaching nearly $17,000 for estates over $7 million.
  • Queensland land tax changes affecting deceased estates will apply from 30 June 2025.
  • Proposed superannuation reforms (Division 296) would tax earnings on balances above $3 million at 30% – including unrealised gains on assets such as property. This would hit many SMSFs holding business premises or farms.

Why the Debate Matters Now

The Productivity Commission has highlighted the looming fiscal challenge of an ageing population – with 22% of Australians expected to be over 65 by 2026. Some suggest inheritance taxes could raise revenue without burdening younger workers. Proponents argue such taxes promote fairness; critics warn they discourage wealth creation, investment, and succession planning.

What Families and Businesses Should Consider

  • Estate planning is more important than ever, particularly for those with farms, businesses, or large super balances.
  • Asset valuations will play a growing role in tax reporting.
  • Policy change risk should be factored into long-term retirement and succession strategies.

The Bottom Line

Although inheritance taxes are not yet on the agenda, the momentum towards taxing wealth – whether via super, probate, or estates – is building. Families, SMSFs, and business owners should stay informed and seek advice on how potential changes may affect them.

👉 Need help with estate or succession planning? Contact Richard A Bobb Chartered Accountants for strategic guidance.

Similar Posts