What is the three-year concessional tax rate for deceased estates?

For the first three income years after a person's death, a deceased estate can be taxed at ordinary individual income tax rates with the benefit of the full tax-free threshold ($18,200), provided the estate's circumstances don't materially change. After three income years, or if material changes occur, the estate is taxed at higher trust tax rates — the compressed scale used for discretionary trusts, which can be very punishing for estates with ongoing investment income.

What is Draft TD 2026/D1 and how does it affect the family home?

Draft Taxation Determination TD 2026/D1, released by the ATO in March 2026, restricts the CGT main-residence exemption for inherited property. It says that the right to occupy a deceased's home must be expressly stated in the will itself. A right arising from a trustee's discretion under a testamentary trust does not qualify. This means that if the family home is directed into a testamentary trust — even one created in the will — the CGT main-residence exemption may be lost when the property is eventually sold, potentially creating a large taxable capital gain.

What are an executor's tax obligations in Australia?

The Legal Personal Representative (LPR) — executor or administrator — must: lodge any outstanding personal tax returns for the deceased; apply for a separate TFN for the estate if it has assessable income; decide whether an estate trust tax return is required; record all post-death income in the estate's name; and pay any tax debts. The LPR is personally responsible for these obligations and can face penalties if they get it wrong.

Is super paid to adult children subject to tax?

Yes — superannuation death benefits paid to non-dependants (typically adult children) can attract tax of up to 32% on the taxable component of the super balance. Spouses, children under 18, and financial dependants are treated as dependants for super death-benefit purposes and receive the death benefit tax-free. Careful planning — including re-contribution strategies or updated binding death benefit nominations — can reduce or manage this tax.

Evidence-backed. Sourced from ATO guidance (2025–2026), Draft Taxation Determination TD 2026/D1 (March 2026), PwC Monthly Tax Update, BNR Partners, Matthew Burgess and the Tax Institute of Australia. General information only — not financial, tax or legal advice. Deceased estate tax is complex and circumstances vary significantly. Consult a registered tax agent and estate-planning lawyer. Last updated: June 2026.

⚡ Key Takeaways

Australia has no formal inheritance tax or death duties in 2026 — but the ATO’s updated guidance and new Draft Taxation Determination are quietly tightening how deceased estates are taxed, particularly around the main-residence CGT exemption and testamentary trusts. ^[9][6]
The ATO’s updated tax-rates guidance (June 2026) confirms that a deceased estate is taxed at ordinary individual rates with the full tax-free threshold for the first three income years after death — but only if the estate’s circumstances don’t “materially change.” After three years (or if new beneficiaries, business activity or major structural changes occur), the estate switches to higher trust tax rates. No Medicare levy applies; no low-income or seniors offsets are available. ^[2][1]
In March 2026, the ATO released Draft Taxation Determination TD 2026/D1 on the “right to occupy” test for the main-residence CGT exemption. The key ruling: the right to occupy must be expressly granted in the will itself. A right created by a trustee exercising discretion under a testamentary trust deed does not qualify — meaning family homes routed into testamentary trusts may lose the main-residence CGT exemption when later sold. Estate specialists have called this a “stealth death tax.” ^[5][6][3]
The Legal Personal Representative (LPR) — the executor or administrator — is personally responsible for lodging the deceased’s outstanding personal returns, applying for a separate TFN for the estate, deciding whether an estate tax return is required, and reporting and paying tax on all post-death income. Getting these wrong can expose the LPR to personal liability for penalties and interest. ^[1][8][4]
Even without a formal inheritance tax, beneficiaries can face: CGT on inherited assets (often calculated using the deceased’s original cost base from potentially decades ago); superannuation death-benefits tax of up to 32% on taxable components paid to non-dependants; and deceased-estate income tax on rents, dividends and interest earned during the administration period. ^[9][3]

The New ATO Rules for Deceased Estates in 2026 — What Every Australian Family Needs to Know

Q: Does Australia have a death tax or inheritance tax in 2026?

No — Australia has no stand-alone estate tax, death duties or inheritance tax in 2026. However, beneficiaries can still face significant tax on inherited assets: CGT on the sale of inherited property (often using the deceased's original cost base), superannuation death-benefits tax of up to 32% on taxable components paid to non-dependants, and income tax on estate income during administration.

By The Fine Print editorial team | Last updated: June 2026 | 14 min read | ⚠️ Not financial or legal advice

Australia doesn’t have a death tax. That’s a fact — and it’s one that most Australians take comfort in when thinking about what they’ll leave behind. But in 2026, the ATO’s approach to deceased estates is becoming meaningfully tighter in ways that matter to ordinary families. A new draft taxation determination restricts the CGT main-residence exemption in ways that could cost families tens of thousands of dollars if their will uses a testamentary trust. A strict three-year window of concessional tax treatment means estates left open too long face much higher tax rates. And executors who don’t understand their obligations carry real personal risk. This guide explains what’s changed, what it means for families, and three concrete steps everyone should take — whether they’re planning an estate or suddenly administering one.

📋 What’s in This Guide

How deceased estate income is taxed — and the three-year window
Draft TD 2026/D1 — the “right to occupy” rule that’s alarming estate planners
What executors (LPRs) must actually do
Four ways the new rules affect Australian families
Three actions to take now
Frequently asked questions

How Deceased Estate Income Is Taxed — and the Three-Year Window

The ATO’s 2025 guidance “Who pays tax on deceased estate income” makes clear that all income earned after the date of death — rental income, interest, dividends — is reported in the estate’s trust tax return, not on the deceased’s final personal tax return. The deceased’s final return covers income up to and including the date of death only. ^[1]The Legal Personal Representative (LPR) — the executor or administrator — reports the estate’s income and pays tax at the estate level, unless a beneficiary is “presently entitled” to that income (meaning they have an immediate, unconditional right to it), in which case the beneficiary is taxed on their share at their own marginal rate. ^[1][4]

The three-year concessional window — how it works:

Years 1–3 after death: The estate can be taxed at ordinary individual income tax rates, with access to the full tax-free threshold ($18,200 in 2025–26). This applies only if there are no “material changes” — such as new beneficiaries being added, significant business activity starting, or major structural changes to the estate.
No Medicare levy is payable by a deceased estate. The estate also cannot access the low-income tax offset, the low and middle income tax offset, or the seniors and pensioners tax offset.
After three income years (or sooner if a material change occurs): the estate is taxed at higher trust tax rates — the same compressed scale that applies to discretionary trusts, where income above $416 is taxed at the top marginal rate. For estates with ongoing rental income or investment returns, this can dramatically increase the tax burden.

⚠️ The practical risk: Families that leave estates open for years — because of property disputes, ongoing rental income, probate delays or slow administration — risk running past the three-year window and into the punishing trust tax rates. An estate with $50,000 in annual rental income that was taxed at modest individual rates in year 2 may face a tax bill of $23,000+ on the same income in year 4 at trust rates. The clock starts from the date of death, not from when probate is granted. ^[2][4]

Draft TD 2026/D1 — The “Right to Occupy” Rule That’s Alarming Estate Planners

In March 2026, the ATO released Draft Taxation Determination TD 2026/D1 — a document that has generated significant alarm among estate-planning specialists. The determination addresses when an individual has a “right to occupy” a dwelling under a deceased’s will for the purpose of the CGT main-residence exemption. ^[5][3]Under the existing CGT rules, a capital gain or loss on a deceased person’s main residence can be disregarded (i.e., the CGT exemption applies) if, from the date of death until the end of ownership, the property is the main residence of “an individual who had a right to occupy it under the deceased’s will.” This provision has historically been interpreted by some practitioners in a relatively broad way. TD 2026/D1 narrows it significantly. ^[3][5]

⚠️ What TD 2026/D1 says:

The right to occupy must be expressly granted in the terms of the will itself — not implied, not assumed, not arising from general trustee powers.
A right created later by a trustee exercising a discretion under a testamentary trust deed is not a “right to occupy under the deceased’s will.”
A testamentary trust created by the will is not equivalent to the deceased estate for these purposes — rights granted under the trust deed are separate and do not automatically qualify for the CGT exemption.

In plain English: if your will leaves the family home to a testamentary trust — even one you created in the will — and a family member lives in it under an arrangement the trustee sets up, that living arrangement may not attract the main-residence CGT exemption when the property is eventually sold. The gain could be fully taxable, calculated from the deceased’s original cost base. For a property bought decades ago and now worth substantially more, that CGT could be enormous. ^[6][5][3]

Estate-planning specialists and professional bodies have reacted strongly. Matthew Burgess (View Legal) published detailed analysis in February 2026 arguing the ATO’s view “quietly creates a death tax” — because families using testamentary trusts (a common and legitimate estate-planning structure, particularly for asset-protection purposes) will face CGT on the family home sale that they would have avoided under a more straightforward will. Professional bodies have lodged submissions challenging the draft determination, arguing it doesn’t reflect the original policy intent behind the main-residence exemption and creates unfair outcomes for long-standing structures. TD 2026/D1 remains a draft as of June 2026 — but practitioners are already advising clients to assume it could be finalised in the current form. ^[6][3]

What Executors (LPRs) Must Actually Do

The Legal Personal Representative — typically the executor named in the will, or the administrator appointed by the court — is personally responsible for the estate’s tax obligations. Many Australians accept this role without fully understanding what it entails. ^[1][8]

LPR tax obligations checklist:

Lodge any outstanding personal tax returns for the deceased — covering all income years up to and including the date of death.
Apply for a separate TFN for the estate if it will have assessable income (rental income, interest, dividends, capital gains from asset sales).
Decide whether an estate trust tax return is required — based on the level of income earned after death, time since death, and whether the income includes CGT events, franked dividends, or other categories that always require reporting.
Record all post-death income in the estate’s name — not on beneficiaries’ personal returns and not as part of the deceased’s final return.
Track the three-year concessional period — know exactly when it expires and plan estate administration to avoid running over unnecessarily.
Handle the main-residence CGT position carefully — especially if the will uses a testamentary trust and the family home is involved. Get specific advice in light of TD 2026/D1 before any property is sold. ^[1][2][4][8]

A forthcoming change (pending enactment) will simplify TFN reporting: trustees, including LPRs, will provide a presently entitled beneficiary’s TFN in the trust tax return itself rather than lodging separate quarterly TFN reports. This reduces administrative complexity for executors managing estates with multiple beneficiaries. ^[7]

Four Ways the New Rules Affect Australian Families

1. Estates now have a clearer “use-by date” for concessional tax treatment

The 2026 guidance makes explicit what was previously less clear: the three-year concessional window is firm, and material changes can cut it short. Families navigating property disputes, probate delays or complex asset structures who let estates run past three years without actively managing the tax position will face higher trust tax rates on ongoing income. The ATO is tracking estate income more systematically — the “deceased estate data package” developed in response to the Inspector-General of Taxation’s review is specifically aimed at improving the ATO’s visibility of estate administration. ^[2][10]

2. A poorly drafted will can create a de-facto “death tax” via CGT

TD 2026/D1’s strict “right to occupy” test means that if a will doesn’t expressly grant a person the right to live in the family home, or if the home ends up in a testamentary trust without an express occupancy right in the will itself, the main-residence CGT exemption may be lost or reduced when the property is sold. For families where the home is the principal asset and is worth substantially more than the deceased paid for it decades ago, the CGT bill could represent a significant portion of the estate — effectively functioning as the inheritance tax Australia officially doesn’t have. ^[6][5][3]

3. Executors carry real personal risk they often don’t appreciate

The LPR is personally responsible for lodging the estate’s returns, paying its tax debts and managing ATO correspondence. Failing to lodge an estate return when required, misapplying the main-residence CGT exemption, or incorrectly attributing post-death income to beneficiaries’ personal returns rather than the estate can leave the estate — and in some circumstances, the LPR personally — exposed to penalties and interest. Estate advisers consistently note that many executors, particularly those administering a parent’s or sibling’s estate without professional help, don’t fully appreciate this exposure until it’s too late. ^[1][4][8]

4. There’s no inheritance tax — but there is a “taxed inheritance” in practice

As at June 2026, Australia has no stand-alone estate or inheritance tax. But beneficiaries regularly face: CGT on the sale of inherited assets (typically calculated from the deceased’s original cost base, which may be very low for long-held assets); superannuation death-benefits tax of up to 32% on the taxable component when super is paid to non-dependants (adult children in most cases); and deceased-estate income tax on income earned during administration. With the ATO tightening its position on main-residence exemptions and improving its data-matching capabilities around estate income, more families are experiencing a “taxed inheritance” in practice — even without a formal death duty. ^[9][3]

✅ Three Actions to Take Now

Action 1: Review your will and testamentary trust provisions specifically in light of TD 2026/D1

If your existing will routes the family home into a testamentary trust — or if you’re considering adding a testamentary trust to a new will — ask your estate-planning lawyer to specifically address two questions. First: does the will expressly grant any person a right to occupy the home, stated clearly in the will’s own terms? Second: does the way the property is directed into the trust preserve or jeopardise the main-residence CGT exemption under the ATO’s draft position in TD 2026/D1? Even if the draft is not yet finalised, planning on the assumption that it will be is the prudent approach. Updating the drafting now costs far less than a surprise CGT bill on the home’s eventual sale — which, for a family property, could easily exceed $100,000. ^[5][6][3]

Action 2: If you’re an executor — or likely to become one — learn the ATO basics before you’re in the role

Read the ATO’s “Who pays tax on deceased estate income” and “Tax rates — deceased estate” pages now, while you have time and mental space. Understand when the estate’s three-year concessional period starts and ends, what triggers a material change, who is taxed on estate income, and what an estate trust tax return requires. If you are currently acting as LPR, confirm the estate has its own TFN, that all post-death income is being recorded against the estate (not beneficiaries’ personal returns), and that any outstanding personal returns for the deceased are lodged. If the estate includes a property, get a tax specialist’s view on the CGT position before anything is sold — especially if a testamentary trust is involved. ^[1][2][8][4]

Action 3: Plan for the tax on inherited assets and super — not just who gets what

When reviewing or creating an estate plan, ask your adviser to model the tax dimension alongside the distribution plan. For key assets — the family home, investment properties, share portfolios — ask for the CGT position if beneficiaries sell soon after death versus hold long-term, using the deceased’s cost base and the main-residence rules as clarified by TD 2026/D1. For superannuation, ask specifically about the death-benefits tax position if super is paid to non-dependant adult children, and whether a re-contribution strategy, updated binding nomination, or restructuring the super balance before death could reduce or eliminate that tax. Sharing this information with your future executors and main beneficiaries now — before a death occurs — dramatically reduces the risk of tax surprises that trigger family disputes during what is already a difficult time. ^[5][3][9]

❓ Frequently Asked Questions

Does Australia have a death tax or inheritance tax in 2026?

No — no stand-alone estate tax or death duties. But beneficiaries can still face CGT on inherited assets, super death-benefits tax up to 32%, and income tax on estate income during administration. ^[9]

What is the three-year concessional rate?

For the first three income years after death, the estate can use individual tax rates with the full tax-free threshold — but only if no material changes occur. After three years, higher trust tax rates apply. ^[2][1]

What is Draft TD 2026/D1?

ATO draft guidance (March 2026) saying the right to occupy a deceased’s home must be expressly stated in the will — not created by a testamentary trustee. Homes directed into testamentary trusts may lose the main-residence CGT exemption on sale. ^[5][6][3]

What must an executor do for tax purposes?

Lodge outstanding personal returns for the deceased; get a separate TFN for the estate; decide whether an estate trust tax return is required; record all post-death income to the estate. Failure creates personal liability for the executor. ^[1][8][4]

Is super taxed when paid to adult children?

Yes — up to 32% on the taxable component when paid to non-dependants (typically adult children). Spouses and dependent children receive it tax-free. Binding nominations and re-contribution strategies can manage this. ^[9]

⚖️ The Fine Print Verdict

Australia officially has no inheritance tax — and that hasn’t changed in 2026. What has changed is the precision with which the ATO identifies, tracks and taxes the various components of what people leave behind. Draft TD 2026/D1 is the clearest example of this: a highly technical determination about a “right to occupy” that most Australians have never heard of, which could cost a family $80,000 or more in CGT on the family home if the will is worded the wrong way. Combined with the strict three-year concessional window, super death-benefits tax for non-dependants, and the ongoing income tax on rents and dividends during estate administration, the reality is that Australian families regularly experience a “taxed inheritance” — just through multiple separate mechanisms rather than one labelled “inheritance tax.” The solution isn’t panic — it’s getting the will right, knowing the executor’s obligations, and having conversations now rather than in the middle of grief.

👉 Book a session with an estate-planning lawyer this year to review how your will handles the family home — specifically in light of TD 2026/D1. It’s one of the highest-value uses of legal advice you’ll ever make.

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📚 Sources & References

ATO, “Who pays tax on deceased estate income,” ato.gov.au/individuals-and-families/deceased-estates/doing-trust-tax-returns-for-the-deceased-estate/who-pays-tax-on-deceased-estate-income (2025)
ATO, “Tax rates — deceased estate,” ato.gov.au/individuals-and-families/deceased-estates/doing-trust-tax-returns-for-the-deceased-estate/tax-rates-deceased-estate (updated June 2026)
PwC Australia, “Monthly Tax Update — March 2026,” pwc.com.au/tax/taxtalk/assets/monthly/pdf/monthly-tax-update-march-2026.pdf
BNR Partners, “Estate Tax Guide,” bnrpartners.com.au/wp-content/uploads/2025/06/BNR-Estate-Tax-Guide-Bi-Fold-web.pdf (June 2025)
Global Law Experts, “Inherited property CGT rules Australia 2026,” globallawexperts.com/inherited-property-cgt-rules-australia-2026/
Matthew Burgess (View Legal), “The new rules quietly creating a death tax as government eyes great wealth transfer,” matthewburgess.com.au/wp-content/uploads/2026/02/The-new-rules-quietly-creating-a-death-tax-as-government-eyes-great-wealth-transfer.pdf (February 2026)
Taxation in Australia Journal, May 2026, taxinstitute.com.au/content/dam/thetaxinstitute/resources/publications/taxation-in-australia/2026/may/26-007RES_TIA_Journal_May_Web.pdf.coredownload.pdf
BNR Partners, “When is an estate income tax return required?” bnrpartners.com.au/project/when-is-an-estate-income-tax-return-required/
Cockatoo, “Estate tax Australia,” cockatoo.com.au/blog/estate-tax-australia
Castletons, “Death and taxes: ATO improvements coming soon,” castletons.com.au/latest-news/death-and-taxes-ato-improvements-coming-soon

This article is general information only and does not constitute financial, tax or legal advice. Deceased estate tax rules are complex and individual circumstances vary significantly. Information is based on ATO guidance (2025–2026), Draft TD 2026/D1 (March 2026), PwC commentary, and specialist estate-planning analysis, current as at June 2026. Consult a registered tax agent and estate-planning lawyer before making any decisions. The Fine Print 🇦🇺 is not affiliated with the ATO or any firm mentioned.

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