Capital Gains Tax on Investment Property Australia 2026: Complete Guide
Selling an investment property? This comprehensive guide explains how to calculate CGT, claim the 50% discount, maximize your cost base, and legally minimize your tax bill when selling Australian rental properties.
Keywords: capital gains tax investment property, CGT Australia, 50% CGT discount, main residence exemption, cost base calculation
What You'll Learn
- How to calculate capital gains tax on investment property sales
- Claiming the 50% CGT discount (12-month rule explained)
- What's included in your cost base (often $50k-$100k+ in additions)
- Main residence exemption and the 6-year absence rule
- 7 proven strategies to minimize your CGT liability
- Record-keeping requirements and common mistakes
💸 The $50,000 CGT Mistake Most Property Investors Make
A 2024 ATO analysis found that property investors under-report their cost base by an average of $50,000-$80,000 when selling investment properties. Why? They forget to include stamp duty, capital improvements, and selling costs. That's $19,000-$29,000 in extra tax paid for no reason. Don't let this happen to you.
Quick Navigation
1. What is Capital Gains Tax?
Capital Gains Tax (CGT) is a tax on the profit you make when you sell an investment property in Australia. It's not a separate tax — it's included as part of your income tax and calculated based on your marginal tax rate.
When you sell an investment property for more than you paid for it, the capital gain (profit) is added to your taxable income for that financial year. However, if you've owned the property for more than 12 months, you may be eligible for the 50% CGT discount.
Example: Basic CGT Calculation
• Purchase price: $500,000 (2020)
• Sale price: $700,000 (2026)
• Capital gain: $200,000
• After 50% discount: Tax on $100,000 (if held 12+ months)
At 37% tax rate, CGT = $37,000 (instead of $74,000 without discount). That's $37,000 saved just by holding for 12 months!
2. The 50% CGT Discount: How It Works
The 50% CGT discount is one of the most valuable tax benefits for Australian property investors. Here's what you need to know:
✓ Eligibility Requirements for 50% Discount:
- Ownership period: You must own the property for at least 12 months before selling
- Tax residency: You must be an Australian resident for tax purposes
- Asset type: The property must be a CGT asset (not trading stock)
✗ Warning: Selling Before 12 Months
If you sell within 12 months, you pay tax on the full capital gain at your marginal tax rate. This is why many investors aim to hold properties for at least a year before selling. The difference can be $50,000+ in extra tax.
3. Calculating Your Cost Base (What You Actually Paid)
Your cost base is the total amount you paid to acquire, hold, and dispose of the property. It's more than just the purchase price — you can include:
✓ Include in Cost Base
- • Purchase price of the property
- • Stamp duty and transfer fees
- • Conveyancing and legal fees
- • Building inspections and valuations
- • Borrowing costs (loan establishment fees)
- • Capital improvements (renovations, extensions)
- • Real estate agent fees on sale
- • Advertising costs to sell
✗ Cannot Include
- • Interest on loans (deducted elsewhere)
- • Ongoing repairs and maintenance
- • Council rates and land tax
- • Insurance premiums
- • Property management fees
- • Depreciation already claimed
💡 Pro Tip: Every Dollar in Your Cost Base Saves Tax
Keep all receipts from the day you purchase to the day you sell. Even small expenses like property inspections ($500) or legal fees ($1,500) can add thousands to your cost base. Every $1,000 in cost base additions saves you $370-$470 in tax (depending on your tax rate).
4. CGT Calculation Formula
Here's the step-by-step formula to calculate your capital gains tax:
Real Example: Sarah's Investment Property Sale
Purchase price (2020): $600,000
Cost base additions: Stamp duty $30,000 + Legal fees $2,000 + Renovation $50,000 = $82,000
Total cost base: $682,000
Sale price (2026): $850,000
Agent fees on sale: $15,000
Capital gain: $850,000 − $682,000 − $15,000 = $153,000
50% discount applied: $153,000 × 50% = $76,500
If your marginal rate is 37%: CGT = $76,500 × 37% = $28,305
5. Main Residence Exemption
If the property was your main residence (primary place of residence) at any time, you may be eligible for a full or partial CGT exemption.
Full Exemption
You get a full CGT exemption if the property was your main residence for the entire period you owned it (from settlement to sale).
Partial Exemption
If you lived in it for part of the time and rented it out for the rest, you calculate CGT based on the proportion of time it was rented:
Example: Partial Exemption
You owned the property for 10 years (3,650 days)
Lived in it for 5 years, rented for 5 years
Capital gain: $200,000
CGT applies to: $200,000 × (1,825 days rented ÷ 3,650 total) = $100,000
With 50% discount: Tax on $50,000 (instead of full $200,000)
🏡 Six-Year Rule (Absence Rule)
If you move out and rent your former home, you can treat it as your main residence for up to 6 years while it's rented out — meaning no CGT on the gain during that period. This is a powerful concession for property investors.
6. Capital Losses: How to Use Them
If you sell an investment property for less than your cost base, you have a capital loss. You can't get a tax refund for capital losses, but you can:
- →Offset capital gains in the same financial year (reduces your taxable gain)
- →Carry forward indefinitely to offset future capital gains
Capital losses can only offset capital gains — they can't reduce your salary or other income. Keep detailed records so you don't lose track of carried-forward losses.
When is CGT Payable?
CGT is payable in the financial year when the contract is signed, not when settlement occurs. For example:
- • You sign the sale contract on June 25, 2026 (FY 2025-26)
- • Settlement occurs on August 15, 2026 (FY 2026-27)
- • CGT is reported in your FY 2025-26 tax return
This matters for tax planning — if you sign a contract in June, you'll owe CGT in that tax return, even if you don't receive the money until after June 30.
7. Strategies to Minimize CGT
1. Hold for 12+ Months (50% Discount)
The easiest way to halve your CGT. If you're close to the 12-month mark, wait a few extra days before signing the contract.
2. Maximize Your Cost Base
Track every expense: stamp duty, legal fees, capital improvements, agent fees. A higher cost base = lower capital gain = less tax.
3. Time the Sale
If you expect lower income next year (e.g., taking time off work, retirement), delay the sale to a year when your marginal tax rate is lower.
4. Use Capital Losses Strategically
If you have carried-forward capital losses, sell in a year when you can offset them against gains from profitable properties.
5. Consider the 6-Year Rule
If you're moving out of your home and converting it to a rental, you can claim main residence exemption for up to 6 years while renting it out.
8. Record Keeping Requirements (ATO)
The ATO requires you to keep records for 5 years after your tax return for the year you sold the property. You must keep:
- ✓Purchase contract and settlement statement
- ✓Sale contract and settlement statement
- ✓Receipts for all cost base expenses (stamp duty, legal fees, improvements)
- ✓Agent invoices and advertising costs
- ✓Valuation reports (if applicable)
- ✓Records of time property was your main residence vs rented
Digital Record Keeping Made Easy
Use ReceiptClaimer to track all property-related expenses from purchase to sale. Upload receipts, categorize costs, and generate reports when it's time to calculate your CGT.
Foreign Residents & CGT Withholding
If you're a foreign resident selling Australian property, different rules apply:
- ✗No 50% CGT discount — you pay tax on the full capital gain
- ✗12.5% withholding — buyer must withhold 12.5% of sale price if over $750,000
- ✗No main residence exemption (in most cases)
If you're an Australian expat, seek professional advice — your residency status for tax purposes can significantly impact your CGT liability.
Calculate Your Capital Gains Tax Now
Use our free Capital Gains Tax Calculator to estimate your CGT liability in seconds.
Frequently Asked Questions
Do I pay CGT if I sell my main residence?
Generally, no. If the property was your main residence for the entire period you owned it, you get a full CGT exemption. Partial exemptions apply if you rented it out for part of the time.
Can I claim capital improvements in my cost base?
Yes! Renovations, extensions, and capital improvements (like adding a deck or pool) can be added to your cost base, reducing your capital gain. Keep all receipts and invoices.
What if I inherit a property?
When you inherit a property, your cost base is generally the market value at the date of death, not what the deceased paid for it. Special rules apply — consult a tax professional.
Can I offset CGT against rental losses?
No. Capital gains are added to your taxable income, but capital losses can only offset other capital gains — not rental income, salary, or other ordinary income.
When do I need to pay the CGT bill?
CGT is paid when you lodge your tax return for the financial year the contract was signed. If you owe a large amount, the ATO may allow a payment plan.
Key Takeaways
- Hold investment properties for 12+ months to access the 50% CGT discount
- Track all expenses from purchase to sale to maximize your cost base
- Main residence exemption can save thousands — understand partial exemptions and the 6-year rule
- Capital losses can be carried forward indefinitely to offset future gains
- Keep records for 5 years after lodging your tax return
🧮 Calculate Your CGT in 2 Minutes
Use our free Capital Gains Tax Calculator to estimate your tax liability when selling investment property. Enter your purchase price, cost base additions, and sale price to see your CGT breakdown instantly.
Get Tax Tips in Your Inbox
Weekly tips on maximizing deductions and staying ATO compliant
No spam, unsubscribe anytime