For Australian expatriates residing in the United States, inheriting property, shares, or cash from Australia involves several important tax considerations.
While Australia does not have an inheritance tax – the U.S. has an estate tax that could potentially apply under certain circumstances.
Additionally, the tax treatment of inherited assets differs between the two countries, particularly concerning capital gains tax (CGT) in Australia and income tax obligations in the U.S.
This article provides a detailed, accurate guide to understanding:
- How the U.S. and Australia treat inheritances
- The correct cost base rules for inherited assets in Australia
- What taxes you need to consider when selling or earning income from inherited assets
- Key reporting requirements for expats receiving an inheritance from Australia
Let’s dive in.
Understanding U.S. Estate Tax And The 1953 U.S.-Australia Estate Tax Treaty
Unlike Australia, the United States has an estate tax, which applies to the total value of a deceased person’s U.S.-situated estate.
However, the “Convention Between the Government of the United States of America and the Government of the Commonwealth of Australia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Estates of Deceased Persons” (1953 U.S.-Australia Estate Tax Treaty) provides certain protections for Australian expats.
How U.S. Estate Tax Applies To Australian Expats
If You Inherit Assets From Australia
- No U.S. estate tax applies when you inherit property, shares, or cash from an Australian estate.
- However, once you own the asset, any future income, dividends, or capital gains from selling the asset will be taxable in the U.S.
If You Own U.S. Assets When You Die
- U.S. estate tax applies to U.S.-situs assets (e.g., real estate, U.S. stocks, U.S. businesses).
- The 1953 U.S.-Australia Estate Tax Treaty allows Australians to claim the same U.S. estate tax exemption as U.S. citizens.
- In 2024, the U.S. estate tax exemption is $13.61 million—meaning no U.S. estate tax applies if your worldwide estate is below this amount.
If your worldwide estate exceeds this threshold, U.S. estate tax could apply at rates of up to 40%.
Key Takeaways
- If you inherit assets from an Australian estate, the U.S. does not impose estate tax on you.
- If you own U.S. assets when you die, your estate could be taxed—but only if your worldwide estate exceeds $13.61 million.
- The 1953 treaty protects Australians from double taxation on estate matters.
Inheriting Property In Australia While Living In The U.S.
Australian Tax Implications: Capital Gains Tax (CGT) On Sale
While inheriting property itself is tax-free, Australia imposes capital gains tax (CGT) when you sell the inherited property.
The rules for calculating the cost base (original value for tax purposes) depend on when the deceased acquired the property.
Correct Cost Base Rules For Inherited Property In Australia
| When the Deceased Acquired the Property | Your Cost Base |
| Before 20 September 1985 (pre-CGT asset) | The market value of the property on the date of the deceased’s death. |
| Before 20 September 1985, but a major improvement was made on/after that date | The market value of the original asset + the cost base of the improvement at the date of death. |
| On or after 20 September 1985 (post-CGT asset) | The deceased’s cost base at the date of death, unless: The property was the deceased’s main residence and not used to generate income before death, in which case the cost base is reset to market value at the date of death. |
| When The Deceased Acquired The Property | Your Cost Base |
| Special disability trust property | The cost base is the market value at the date of death. |
Selling Inherited Property & Australian CGT
If you sell the property within two years, you may qualify for a CGT exemption (if the deceased’s main residence was not used for rental income).
If the property was an investment property, CGT applies based on the correct cost base.
U.S. Tax Implications
No U.S. tax applies when you inherit the property.
However if you sell the property, the IRS will tax the capital gain, but you can claim a foreign tax credit for Australian CGT to avoid double taxation.
If you rent out the property, you must report rental income in the U.S. and may owe tax.
Inheriting Shares In Australia While Living In The U.S.
Australian Tax Implications
- No tax is due at the time of inheritance.
- If the deceased acquired the shares before 20 September 1985, the cost base is the market value at the date of death.
- If the deceased acquired the shares on or after 20 September 1985, your cost base is the deceased’s cost base at the date of death.
U.S. Tax Implications
- No U.S. tax applies to the inheritance itself.
- Any dividends from Australian shares are taxable in the U.S. as foreign income.
- When you sell the shares, you must report the capital gain to the IRS.
- If you pay Australian CGT, you can claim a foreign tax credit in the U.S.
Inheriting Cash In Australia While Living In The U.S.
Australian Tax Implications
No tax applies to inherited cash in Australia.
U.S. Tax Implications
- No U.S. tax applies to the inheritance itself.
- If you receive over USD $100,000 from a foreign inheritance, you must file IRS Form 3520.
- Failing to file Form 3520 can result in penalties of $10,000 or more.
U.S. Reporting Requirements For Australian Inheritances
| Form | Who Needs to File? | What It Reports |
| FBAR (FinCEN Form 114) | If foreign financial accounts exceed $10,000 | Foreign bank accounts, superannuation, shareholdings |
| Form 8938 | If foreign assets exceed $50,000 (single) or $100,000 (joint) | Foreign financial assets, including shares |
| Form 3520 | If you inherit $100,000+ in a single year | Reporting large foreign inheritances to the IRS |
Final Takeaways: What You Need To Know About Inheritance As An Australian Expat In The U.S.
- No U.S. estate tax applies to inheritances from Australia due to the 1953 U.S.-Australia Estate Tax Treaty.
- Australia has no inheritance tax, but CGT applies when selling inherited property or shares.
- The correct cost base for inherited Australian assets depends on when the deceased acquired them.
- Rental income and dividends from Australian assets must be reported in the U.S.
- If you receive more than $100,000, you must file IRS Form 3520 to report it.
- Foreign tax credits can help prevent double taxation on asset sales.
The above is a general overview of inheritance considerations for Australians living in the US. There may be nuances in your personal circumstances that may need specific tax advice. It is important you obtain individual advice specific to your situation.