How does the CGT discount apply to inherited assets and deceased estates in Australia?

Inheriting an asset does not immediately trigger a CGT event — the deceased's death is not a CGT event in itself (with some exceptions). The tax rules around inherited assets depend on when the deceased acquired the asset and how long the beneficiary subsequently holds it.

Cost base rules for inherited assets: When you inherit an asset, your cost base is generally the market value of the asset at the date of the deceased's death. However, if the deceased acquired the asset before 20 September 1985 (pre-CGT), special rules apply — you inherit the asset with a cost base equal to its market value at death, and any future gains are calculated from that point.

The 12-month discount rule for inheritances: If you sell an inherited asset and want to claim the 50% CGT discount, you must hold it for more than 12 months. Importantly, the ATO allows you to include the period the deceased held the asset when calculating the 12-month period — you do not need to hold it for a fresh 12 months from the date of death. So if the deceased held shares for 5 years before dying and you sell them 2 months later, the combined holding period exceeds 12 months and the discount applies.

Main residence inherited from deceased: If you inherit a dwelling that was the deceased's main residence, a CGT exemption may apply on sale provided you sell within 2 years of the date of death (or the property continues to be used as a main residence). This 2-year period can be extended by the ATO in some circumstances.