Capital Gains Tax on Property Australia (2026): Complete Guide

Overview

Capital gains tax (CGT) is one of the most significant tax considerations for Australian property investors. When you sell an investment property for more than you paid, the profit forms part of your assessable income and is taxed at your marginal rate. Understanding how CGT works, what qualifies for the 50% discount, and how to maximise your cost base can save you tens of thousands of dollars.

This guide covers everything you need to know about CGT on property in Australia, including how it is calculated, the main residence exemption, the 50% discount for individuals, and practical strategies to reduce your CGT liability.

What Is Capital Gains Tax?

CGT is not a separate tax — it is part of the income tax system. When you sell a CGT asset (such as an investment property) for more than your cost base, the capital gain is added to your assessable income for that financial year and taxed at your marginal rate.

CGT was introduced on 20 September 1985. Properties acquired before this date are generally exempt from CGT, regardless of how much they have increased in value.

How CGT Is Calculated on Property

The basic CGT calculation involves four steps:

1. Determine the cost base — the original purchase price plus all allowable costs
2. Determine the capital proceeds — the sale price minus selling costs
3. Calculate the capital gain — capital proceeds minus cost base
4. Apply any discount — the 50% CGT discount if eligible

The Cost Base

Your cost base is not just the purchase price. It includes:

• Purchase price — what you paid for the property
• Stamp duty — transfer duty paid at purchase
• Legal and conveyancing fees — at both purchase and sale
• Building and pest inspections — pre-purchase inspections
• Capital improvements — renovations, extensions, structural work that adds value
• Non-deductible holding costs — for properties acquired after 20 August 1991 that are not producing income

Important: costs you have already claimed as tax deductions (such as repairs, maintenance, and depreciation) cannot be included in the cost base. If you claimed depreciation deductions during ownership, the cost base may need to be reduced accordingly.

Selling Costs

Selling costs reduce your capital proceeds and therefore your capital gain. These include:

• Real estate agent commission — typically 1.5-3% of the sale price
• Solicitor and conveyancing fees — legal costs of the sale
• Marketing and advertising — vendor-paid advertising campaigns
• Auctioneer fees — if sold at auction

The 50% CGT Discount

Individual taxpayers who hold a CGT asset for at least 12 months before selling are entitled to a 50% discount on the capital gain. This means only half the gain is included in your assessable income.

Eligibility requirements:

• You must be an individual (not a company)
• The asset must have been held for at least 12 months
• The asset must have been acquired after 11:45am on 21 September 1999

Superannuation funds receive a one-third (33.33%) discount. Companies are not eligible for any CGT discount.

Worked Example

Say you purchased an investment property for $500,000 in 2018 and sold it in 2026 for $750,000.

• Purchase price: $500,000

• Purchase costs (stamp duty, legal): $25,000

• Capital improvements (renovation): $30,000

• Cost base: $555,000

• Sale price: $750,000

• Selling costs (agent, legal, marketing): $20,000

• Capital proceeds: $730,000

• Gross capital gain: $175,000 ($730,000 - $555,000)

• 50% CGT discount: $87,500

• Taxable capital gain: $87,500

If your marginal tax rate is 37%, the CGT payable would be $87,500 x 0.37 = $32,375.

Without the 50% discount, CGT would be $175,000 x 0.37 = $64,750 — nearly double.

Main Residence Exemption (PPOR)

Your principal place of residence (PPOR) is generally fully exempt from CGT. This is one of the most valuable tax concessions in Australia. To qualify:

• The property must be your main residence
• You must have lived in it as your home
• It must not have been used to produce income for the entire period of ownership

Partial Exemptions

If you lived in the property as your PPOR for part of the ownership period and rented it out for the remainder, a partial exemption applies. The exempt portion is calculated based on the number of days it was your main residence versus the total ownership period.

The 6-Year Rule

If you move out of your PPOR and rent it out, you can continue to treat it as your main residence for CGT purposes for up to 6 years, provided you do not nominate another property as your PPOR during that time. This is known as the absence rule and can be a powerful CGT planning tool.

Strategies to Minimise CGT

1. Hold for at Least 12 Months

This is the simplest and most effective strategy. Holding for 12+ months qualifies you for the 50% CGT discount, immediately halving the taxable gain.

2. Maximise Your Cost Base

Keep records of all capital improvement costs, purchase costs, and other allowable expenditure. The higher your cost base, the lower your capital gain.

3. Time Your Sale

Consider selling in a financial year when your other income is lower. Since CGT is added to your assessable income and taxed at your marginal rate, a year with lower income means a lower marginal rate on the gain.

4. Use Capital Losses

Capital losses from other assets (shares, other properties) can be offset against capital gains. If you have realised losses, they reduce your net capital gain and therefore your CGT liability.

5. Consider the 6-Year Absence Rule

If the property was your PPOR, moving out and renting it for up to 6 years maintains the full CGT exemption. This can be particularly useful if you plan to return.

6. Contribute to Super Before Selling

Making additional concessional superannuation contributions before the sale can reduce your taxable income in that year, potentially lowering the marginal rate applied to your capital gain.

What About Vacant Land and Holiday Homes?

Vacant land and holiday homes are subject to CGT in the same way as investment properties. They do not qualify for the main residence exemption (unless the holiday home was genuinely your main residence). The 50% discount still applies if held for 12+ months.

Record Keeping

The ATO requires you to keep records of all costs related to the acquisition, holding, and disposal of a CGT asset. Keep receipts and documentation for:

• Purchase contracts and settlement statements
• Stamp duty receipts
• Renovation and improvement invoices
• Agent commission and selling cost invoices
• Depreciation schedules

Records must be kept for 5 years after you lodge the tax return in which the CGT event is reported.

Use Our Calculator

Estimate your CGT liability with our Capital Gains Tax Calculator. Input your purchase and sale details, costs, and tax bracket to see your estimated CGT payable and net profit after tax.

Calculate your CGT: Capital Gains Tax Calculator.