Generally, you do not pay tax when you inherit property, but depending on the circumstances, you may need to pay tax when you sell it.
This applies to all kinds of property – commercial and residential.
The previous owner's intention
When you inherit property, you also inherit the previous owner’s intentions for that property. So if the person who died would have had to pay tax when they sold it, then you will too.
Learn more about when property sales may be taxable.
In May 2021, Lola buys a bare section, intending to subdivide it into 4 lots and build houses on each section to sell. However, she dies in April 2022, before the newly built houses are sold.
In Lola's will, she leaves all her property to her daughter, Maya. The subdivided properties are transferred to Maya in August 2022. She sells all 4 in February 2023 and makes a profit.
Maya does not need to pay any tax when she inherits the properties, but she needs to pay tax on her profit when she sells them. This is because if Lola had sold the properties herself, she would have had to pay tax on her profit, because she had always intended to sell it. So Maya also has to pay tax.
Maya declares the income in her 2023 income tax return.
Inheriting residential property
The bright-line test does not usually apply when you sell an inherited residential property.
However, if you buy someone else's share of the inherited property, you'll need to pay tax on that share if you sell the property within the applicable bright-line period.
Learn about when this might apply to you.
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