Death and Taxes: Part 1 – What were inheritance taxes in Australia?

Anthony J CordatoAnthony Cordato, Principal, Cordato Partners, Principal at Cordato Partners, begins his series on death taxes / inheritance taxes. In his first article, he examines the inheritance taxes which have been abolished – which were called death duty and estate duty, and why they were abolished. In Part 2, he examines the new taxes that tax wealth on death which have replaced inheritance taxes. Follow his series here


They say that death and taxes are the only two certainties in life.

But that cannot be said for death taxes / inheritance taxes in Australia. They were abolished in 1982, after raising considerable tax revenue for 100 years from 1880.

Every so often, there are calls to reintroduce inheritance taxes. The folly of these calls is apparent when the taxes and the reasons why they were abolished are examined

Death Duty was introduced in NSW in the Stamp Duties Act of 1880. Not long afterwards, Victoria, Queensland and the other States followed and introduced their own Death Duty. It was also known as Probate Duty, Succession Duty, Estate Duty, Estate Tax, Inheritance Tax or Bequest Tax.

Death Duty was payable on the value of the deceased’s assets as at the date of death.

The Stamp Duties Act 1920 (NSW) (which replaced the Act of 1880) provided in section 101:

“In the case of every person who dies [domiciled in New South Wales] … death duty shall be assessed and paid — (a) upon the final balance of the estate of the deceased; … and (b) upon all property forming part of the dutiable estate.”

The “dutiable estate” was all-encompassing: the family home, other real estate, bank accounts, bonds, shares, jewellery, artworks and personal possessions were included. Debts due and payable were deducted to determine the “final balance of the estate”.

But that was not all. “All property forming part of the dutiable estate” included deathbed gifts and gifts made within three years before death in the dutiable estate (the “notional estate”).

When death duty was introduced in NSW, it was assessed at a flat rate of 1% of the value of the dutiable estate, for all persons dying on or after 1 July 1880.

In the Act of 1920, the rate was increased to flat 2% for small estates of up to £1,000, progressively increasing to a flat 20% for large estates, that is, estates with a value above £150,000. Lower rates applied when the estate was bequeathed to a widow, widower, dependent child, a public hospital, or a charity for the relief of poverty or for education.

In 1965, the rate was a flat rate of 3% for small estates up to $2,000, increasing to 15% for a mid-range estate of $54,000, and increasing to a top rate of 32% for large estates above $200,000 in value. The estate value for these tax brackets had not been raised since the 1940s despite inflation.

As a result, in the 1960s a tax planning industry grew up to assist wealthy people to restructure their assets to avoid high death duties. Some set up corporations and trusts in Australia, others moved their assets and domicile to tax havens such as the Bahamas, Cayman Islands, Monaco, Singapore and Hong Kong. Tax revenue from death duty started to fall.

But the real driver for abolition of death duty was that the value of the family home was included in the estate. With the high inflation of the 1970s, modest estates consisting of a family home and some savings were worth $54,000, attracting a flat 15% death duty. They were taxed twice – once when the home was left to the spouse, and again when left to the children.

Queensland led the abolition of death duty in 1978. As a result, significant numbers of retirees sold up their homes in Sydney and Melbourne and moved their domicile and money to the death duty ‘tax haven’ of the Gold Coast.

It was apparent to all that 100 years after it was introduced, death duty had become a political liability and abolition was a necessity.

Death duty was abolished in South Australia and Western Australia in 1980, in Victoria and New South Wales in 1981 and in Tasmania in 1982. Abolition was supported by the major political parties.

Estate Duty was an inheritance tax paid at the Federal level and was payable in addition to State death duty. It was introduced by the Australian Government to finance World War I.

The Estate Duty Assessment Act 1914 (Cth) provided in section 8(1):

“… estate duty shall be levied and paid upon the value … of the estates of persons dying after the commencement of this Act” [i.e. after 21 December 1914]

The dutiable estate comprised all real and personal property in Australia.

In addition, gift duty was payable at the Federal level on asset transfers by living persons, to discourage estate duty avoidance by giving the estate away before death.

The top tax rate was initially 20%. Later it was increased to 27.9%. When combined with death duty, estate duty meant that inheritance taxes as high as 54.225% of the value of the estate were payable, resulting in many family homes, farms and businesses needing to be sold or go into debt to pay the death taxes.

This scale from 1949 illustrates the NSW death duty and the Federal estate duty payable when an estate passed to a widow and children:

Estate duty was abolished on and from 1 July 1979, sixty one years after the end of World War I.

Australia has the distinction of being the first rich country in the world (along with Canada) to abolish inheritance taxes. Other counties are following this trend. 19 countries have abolished inheritance taxes, including: Israel inheritance tax in 1981, New Zealand estate duty in 1992, Portugal inheritance tax in 2004, Hong Kong estate tax in 2006 and Singapore estate tax in 2008.

Anthony Cordato has practised as a lawyer in the central business district of Sydney for many years. Anthony practises in his own firm, the boutique legal firm of Cordato Partners, which he founded in 1996. Anthony specialises in the fields of law he loves: business law, property (real estate) law and tourism (travel) law. With his experienced team, Anthony looks after transactions and litigation. Anthony is proud to have acted on more than 10,000 real estate transactions. His firm is cited as a party’s solicitor in more than 65 reported decisions in the courts and tribunals of New South Wales and in the Federal Courts. Contact Anthony through his website or LinkedIn.