Inherited Australian Property as a Non-Resident: How CGT Is Calculated When You Sell an Asset You Never Bought

When a non-resident inherits Australian property, they inherit a capital gains tax obligation alongside the asset itself. The Australian Tax Office (ATO) does not simply exempt inherited assets from CGT. Instead, it applies a specific set of rules that determine your cost base, your discount eligibility, and in some cases, triggers a CGT event before you even decide to sell. Non-residents are categorically excluded from the 50% CGT discount that Australian residents rely on to reduce their tax bill, and the withholding rules that apply at settlement add another layer of compliance complexity ^[1].

What Is CGT Event K3 and Why Does It Matter for Non-Resident Beneficiaries?

CGT event K3 is the mechanism the ATO uses to ensure that unrealised capital gains on Australian assets do not permanently escape the tax net when an asset passes to a non-resident. When an Australian estate distributes an asset to a non-resident beneficiary, CGT event K3 is triggered at the estate level, not at the beneficiary level ^[5]. This means the estate itself may have a CGT liability assessed at the point of distribution, based on the difference between the asset’s cost base and its market value at the date of death.

• CGT event K3 applies when a non-resident is the beneficiary and the asset is a taxable Australian property.
• The CGT liability from event K3 is reported and paid by the estate in its final tax return ^[2].
• From the beneficiary’s perspective, the cost base for any future sale is reset to the market value at the date of death.
• This reset is important: it means you are only taxed on the gain that accrues from the point of inheritance, not on gains that occurred during the deceased’s lifetime.

The practical implication is that non-resident beneficiaries need a formal market valuation of the property as at the date of death, not as at the date they decide to sell. This is general information only and does not constitute personal tax advice. Missing this step means the cost base defaults incorrectly, overstating the taxable gain when you eventually dispose of the asset.

How Is the Cost Base Determined When You Inherit Rather Than Buy?

Building on the K3 framework above, determining your cost base as a non-resident beneficiary depends on when the deceased acquired the property and whether it qualified as their main residence. This section provides general information about how the ATO applies these rules and is not personal tax advice.

The two-year rule for main residence properties deserves specific attention. If you sell within two years of the date of death, you inherit the market value at death as your cost base, which typically minimises your CGT exposure. If you hold beyond two years, the cost base reverts to what the deceased originally paid, which can significantly increase your taxable gain. This is not a widely understood distinction, and it frequently catches non-resident beneficiaries who delay selling while managing an estate from overseas.

What CGT Rate Applies When a Non-Resident Sells Inherited Australian Property?

A related but distinct question from cost base is the rate at which any gain is taxed. Non-residents are taxed on Australian-sourced capital gains at the applicable marginal rate for non-residents in the relevant financial year, without access to the 50% CGT discount that Australian tax residents can apply to assets held for more than 12 months ^[1].

• The 50% discount is not available to non-residents, regardless of how long the property has been held.
• The full capital gain is included in assessable income and taxed at non-resident marginal rates for the relevant financial year.
• All calculations must be performed in Australian dollars, including converting any foreign currency costs ^[4].
• From 1 July 2027, the 50% CGT discount for individuals is proposed to be replaced by cost base indexation for assets held more than 12 months, though this measure is not yet legislated and will not apply to non-residents who already cannot access the discount ^[7].

What Is the Foreign Resident CGT Withholding and How Does It Affect Settlement?

Stepping back from the rate calculation, a separate compliance obligation arises at the point of sale itself. From 1 January 2025, if you are a non-resident selling Australian property, the buyer is legally required to withhold 15% of the purchase price and remit it directly to the ATO. This applies to all property sales regardless of the property’s value, as the previous 750,000 threshold was removed entirely on that date ^[6].

• The withholding applies to the gross sale price, not the capital gain. This means it is withheld before any cost base or expenses are deducted.
• The withheld amount is a prepayment of your CGT liability, not a final tax. You reconcile the actual liability when you lodge your Australian tax return for that financial year.
• If your actual CGT liability is lower than the amount withheld, you receive a refund. If it is higher, you pay the difference.
• You can apply to the ATO for a variation of the withholding rate before settlement if your actual gain is significantly lower than the withholding would imply.

Frequently Asked Questions

Do I need to lodge an Australian tax return if I inherit and sell Australian property as a non-resident?

Yes. Any sale of taxable Australian property by a non-resident generates an Australian tax obligation that must be reported in an Australian tax return, regardless of where you live.

Can I claim the main residence exemption on an inherited property if I never lived there?

Generally no. The main residence exemption requires the property to have been your own main residence. As a non-resident who inherited but never occupied the property, you would not typically qualify, though the two-year rule may still allow the estate-value cost base to apply if you sell promptly.

What happens if the estate already paid CGT under event K3?

If CGT event K3 was triggered and tax was paid by the estate, your cost base is set to market value at date of death. You are not taxed again on the same gain; you are only liable for gains that arise from the date of inheritance to the date you sell ^[5].

Is the 15% withholding deducted from me or does the buyer pay it?

The buyer is legally obligated to withhold it from the purchase price and remit it to the ATO. You receive the sale proceeds net of the withholding ^[6].

Does it matter what country I am a tax resident of when I sell?

Yes. Australia has Double Tax Agreements (DTAs) with many countries that can affect how the same gain is treated across jurisdictions. You may be entitled to a foreign income tax offset in your country of residence for Australian CGT paid, depending on the specific DTA.

How do I get a cost base valuation for the date of death?

You will need a formal valuation from a qualified property valuer, ideally conducted as close to the date of death as possible. Retrospective valuations are accepted by the ATO but become harder to defend the longer you wait.

What if I inherited a property jointly with an Australian resident sibling?

The CGT rules apply to each beneficiary separately based on their own tax residency status. Your sibling may be entitled to the 50% discount; you would not be. CGT event K3 would apply only to the non-resident’s share ^[2].

References

1. A Guide to Capital Gains Tax for Australian Expats (titanwealthinternational.com)
2. Considerations for Expats Inheriting Australian Assets (atlaswealth.com)
3. Succession Series: What You Need to Know About Tax When Inheriting Property – Modoras (modoras.com)
4. How to Save on Capital Gains Tax When Selling Property Successfully (thepropertyaccountant.com.au)
5. The Tax Treatment on the Inheritance of Australian Assets by a U.S. Resident (www.arete-wa.com)
6. Key 2025 changes to Australia’s Foreign Resident Capital … (gsbglobal.com)
7. Federal Budget | Investment (www.pwc.com.au)