How much is capital gains tax on investment property in Australia?

Capital gains tax is not a separate tax in Australia. The capital gain is added to your taxable income and taxed at your marginal tax rate. If you held the property for more than 12 months, you can claim a 50% CGT discount, effectively halving the taxable gain. For example, if your marginal tax rate is 37%, you would pay 18.5% on the discounted capital gain (37% ÷ 2).

What is the 50% CGT discount and how do I qualify?

The 50% CGT discount allows Australian residents to reduce their capital gain by half if they held the asset for at least 12 months before selling. To qualify: (1) You must be an Australian resident for tax purposes, (2) The property must be held for at least 12 months (from settlement to contract signing), and (3) The discount applies to individuals and trusts, not companies. This can save tens of thousands in tax.

What expenses can I add to my cost base to reduce CGT?

Your cost base includes: (1) Purchase price, (2) Stamp duty and legal fees when buying, (3) Capital improvements (renovations, extensions, not repairs), (4) Interest on construction loans during building, (5) Real estate agent fees and advertising when selling, (6) Solicitor fees for the sale, and (7) Valuation fees if required. Most investors forget stamp duty and selling costs, missing $50,000-$80,000 in deductions. Keep all receipts from purchase to sale.

Can I avoid CGT by living in my investment property first?

Yes, the main residence exemption can eliminate CGT if you live in the property as your primary home. The 6-year absence rule is powerful: you can move out, rent it for up to 6 years, then sell CGT-free (if you don't claim another main residence). To maximize this: live in the property for at least 12 months, rent it out for up to 6 years, then sell. You'll get both the main residence exemption and rental income. This strategy can save $50,000-$200,000+ in CGT on typical Sydney or Melbourne properties.

When is CGT payable on investment property?

CGT is payable in the financial year the contract is signed (not settlement date). If you sign a contract in June 2026 but settle in August 2026, the CGT is due in your 2025-26 tax return. You report the capital gain in your annual tax return and pay any tax owed by October 31 (or May 15 if using a tax agent). Plan ahead: you may owe 20-40% of your net gain, so set aside funds before settlement or consider selling early in the financial year to maximize time before payment is due.

Tax Guides3 min read•Last updated 2025-12-15

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.

TL;DR — Quick Summary

Quick: How CGT is calculated, the 50% discount, and strategies to minimise tax when selling property.
Who benefits: Investors selling properties who want to protect their cost base.
Action: Use the CGT calculator and review your cost base before selling.

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.

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).

Calculate Your CGT

4. CGT Calculation Formula

Here's the step-by-step formula to calculate your capital gains tax:

Step 1: Calculate Capital Gain

Capital Gain = Sale Price − Cost Base

Step 2: Apply 50% Discount (if eligible)

Discounted Gain = Capital Gain × 50%

Step 3: Add to Taxable Income

Total Taxable Income = Your Income + Discounted Gain

Step 4: Calculate Tax

CGT Payable = Discounted Gain × Your Marginal Tax Rate

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 your specific situation. There are two main rules:

Section 118-192: The "Market Value" Rule

Scenario: You lived in the house first, then rented it out.

If you bought a house, lived in it as your home, and later decided to rent it out, this is your best friend. For tax purposes, the ATO "resets" the cost of your house to its market value on the day it first starts earning rent.

Example: Market Value Reset

Bought for: $500,000 (lived in it)

Market value when first rented: $800,000

Sold later for: $1,000,000

Your taxable gain is only: $1,000,000 - $800,000 = $200,000

(The $300,000 growth while you lived there is tax-free)

Section 118-185: The "Pro-Rata" Rule

Scenario: You rented it out first, then moved in (or don't qualify for the rule above).

If you bought the property as an investment first and moved in later, the calculation is based on time. You take the total profit made over the entire time you owned it and divide it by the number of days.

CGT = Total Capital Gain × (Days Rented ÷ Total Days Owned)

Example: Pro-Rata Reduction

You owned the property for 10 years (3,650 days)

Rented for 4 years, lived in it for 6 years

Total Capital Gain: $200,000

Taxable gain applies to: $200,000 × (4 years rented / 10 years total) = $80,000

With 50% discount: Tax on $40,000

🏡 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.

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.

9. Common CGT Mistakes

1. Forgetting to Include All Costs in the Cost Base

This is the most common mistake. Investors forget to include stamp duty, legal fees, and capital improvements in their cost base, which inflates their capital gain and tax bill.

2. Selling Just Before the 12-Month Mark

Selling a property even a few days before holding it for 12 months means you miss out on the 50% CGT discount, potentially costing you tens of thousands.

3. Incorrectly Claiming the Main Residence Exemption

Claiming the main residence exemption for a property that was rented out for the entire period is a major red flag for the ATO and can lead to audits and penalties.

4. Forgetting About Carried-Forward Capital Losses

If you have capital losses from previous years, you can use them to offset capital gains. Forgetting to include them means you pay more tax than you need to.

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.

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 Capital Gains Tax Now

Use our free Capital Gains Tax Calculator to estimate your CGT liability in seconds.

🧮 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.

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Capital Gains Tax on Investment Property Australia 2026: Complete Guide

TL;DR — Quick Summary

What You'll Learn

💸 The $50,000 CGT Mistake Most Property Investors Make

Quick Navigation

1. What is Capital Gains Tax?

2. The 50% CGT Discount: How It Works

3. Calculating Your Cost Base (What You Actually Paid)

✓ Include in Cost Base

✗ Cannot Include

💡 Pro Tip: Every Dollar in Your Cost Base Saves Tax

4. CGT Calculation Formula

5. Main Residence Exemption

Full Exemption

Partial Exemption

Section 118-192: The "Market Value" Rule

Section 118-185: The "Pro-Rata" Rule

6. Capital Losses: How to Use Them

7. Strategies to Minimize CGT

1. Hold for 12+ Months (50% Discount)

2. Maximize Your Cost Base

3. Time the Sale

4. Use Capital Losses Strategically

5. Consider the 6-Year Rule

8. Record Keeping Requirements (ATO)

9. Common CGT Mistakes

1. Forgetting to Include All Costs in the Cost Base

2. Selling Just Before the 12-Month Mark

3. Incorrectly Claiming the Main Residence Exemption

4. Forgetting About Carried-Forward Capital Losses

Foreign Residents & CGT Withholding

Frequently Asked Questions

Do I pay CGT if I sell my main residence?

Can I claim capital improvements in my cost base?

What if I inherit a property?

Can I offset CGT against rental losses?

When do I need to pay the CGT bill?

Key Takeaways

Calculate Your Capital Gains Tax Now

🧮 Calculate Your CGT in 2 Minutes

Get Tax Tips in Your Inbox

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2. The 50% CGT Discount: How It Works

3. Calculating Your Cost Base (What You Actually Paid)

✓ Include in Cost Base

✗ Cannot Include

💡 Pro Tip: Every Dollar in Your Cost Base Saves Tax

4. CGT Calculation Formula

5. Main Residence Exemption

Full Exemption

Partial Exemption

Section 118-192: The "Market Value" Rule

Section 118-185: The "Pro-Rata" Rule

6. Capital Losses: How to Use Them

7. Strategies to Minimize CGT

1. Hold for 12+ Months (50% Discount)

2. Maximize Your Cost Base

3. Time the Sale

4. Use Capital Losses Strategically

5. Consider the 6-Year Rule

8. Record Keeping Requirements (ATO)

9. Common CGT Mistakes

1. Forgetting to Include All Costs in the Cost Base

2. Selling Just Before the 12-Month Mark

3. Incorrectly Claiming the Main Residence Exemption

4. Forgetting About Carried-Forward Capital Losses

Foreign Residents & CGT Withholding

Frequently Asked Questions

Do I pay CGT if I sell my main residence?

Can I claim capital improvements in my cost base?

What if I inherit a property?

Can I offset CGT against rental losses?

When do I need to pay the CGT bill?