Is money I inherit from Israel taxable in Australia?

An Australian beneficiary of an Israeli estate braces for a tax bill on the money coming their way, then hears there is no inheritance tax in Australia and relaxes completely. The first instinct is too worried and the second is too relaxed. Receiving the inheritance is tax-free. What you do with the assets afterwards, and especially selling inherited Israeli real estate, is where the Australian Taxation Office has an interest.

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Detailed Explanation

Take the death tax question first, because it is the one people ask. Australia has levied no inheritance, estate, or death duty since the late 1970s, so an Australian resident who receives cash, property, or shares from an Israeli estate pays no Australian tax simply for inheriting. Israel is the same on this point: it abolished estate duty in 1981, and there is no Israeli inheritance tax on the transfer to heirs. So a straightforward cash inheritance wired from an Israeli estate to an Australian beneficiary arrives without a tax charge on either side. That much of the relaxed instinct is correct.

The exposure is capital gains tax, and it is deferred rather than absent. Under Australian law, inheriting an asset is generally not itself a CGT event, but the beneficiary takes on a cost base that is inherited from the deceased's position, and CGT applies when the beneficiary later sells. How the cost base is set depends on timing. For an asset the deceased acquired before Australian CGT began on 20 September 1985, the beneficiary's cost base is usually the market value at the date of death. For an asset the deceased acquired on or after that date, the beneficiary generally inherits the deceased's own cost base, meaning the built-in gain carries over. Because an Australian resident is taxed on worldwide capital gains, selling an inherited Israeli apartment or an inherited holding of Israeli shares is an Australian CGT event, even though the asset sits in Israel.

Israel taxes that same sale first, as Israeli-source gain. Selling inherited Israeli real estate triggers betterment tax (mas shevach) under the Real Estate Taxation Law 1963, and the heir there also inherits the deceased's acquisition date and cost, so the Israeli gain reaches back over the deceased's ownership too. Australia then taxes the gain but allows a foreign income tax offset for the Israeli tax paid, so the same gain is not fully taxed twice, and an individual who has held the asset long enough may also access the 50% CGT discount on the Australian side. The two systems measure the gain differently, so the offset rarely produces a perfect wash, and the order of sale, valuation, and currency conversion all affect the result. The Israeli administration and sale steps for an Australian estate are set out in our guide to an Australian executor administering an Israeli estate.

There is a further, easily missed layer during administration. If the Israeli estate earns income, rent, interest, or dividends, between the death and the distribution, that income can be taxable, and once assets are in your hands any income they generate is assessable in Australia. So a beneficiary who inherits an Israeli rental apartment steps immediately into ongoing Australian reporting of the rent, on top of the eventual CGT on sale. The inheritance is tax-free; almost everything that happens after it may not be.

In Practice: Neither Australia nor Israel levies a death tax, Israel having abolished estate duty in 1981, so the inheritance itself is untaxed. Australian CGT applies when the beneficiary sells an inherited Israeli asset, with the cost base turning on whether the deceased acquired it before or after 20 September 1985, and a foreign income tax offset is available for Israeli tax. On an inherited Israeli property sale, the mas shevach declaration is filed with the Israel Tax Authority (Rashut HaMisim) within 30 days, and clearance for the Land Registry transfer commonly takes 4 to 10 weeks.

Key Considerations

• Neither Australia nor Israel charges an inheritance or estate tax, so receiving the inheritance is tax-free.
• Australian CGT applies when you sell an inherited Israeli asset, not when you inherit it.
• The inherited cost base depends on whether the deceased acquired the asset before or after 20 September 1985.
• Israel taxes an inherited property sale first, with an Australian foreign income tax offset to reduce double tax.
• Income the inherited assets earn, such as rent, is assessable in Australia from the moment you receive them.

When to Consult a Lawyer

This question typically requires professional legal advice when:

• You have inherited Israeli real estate or shares and are planning to sell, triggering CGT on both sides.
• The deceased acquired the asset long ago and the cost base and Israeli acquisition date need to be established.
• The Israeli estate is generating rent or other income before distribution and you need to know what to report in Australia.

A qualified Israeli attorney working with your Australian accountant should coordinate the Israeli sale and tax documentation so the foreign income tax offset is claimed correctly.

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Speak With an Israeli Attorney

We handle the Israeli side for Australian beneficiaries, obtaining the succession or will execution order, managing the betterment tax and clearance on any sale, and producing the Israeli tax records your Australian accountant needs for CGT and the foreign income tax offset.

Contact us for a confidential initial consultation.