Capital Gains Tax on Property in Australia: The Complete 2025-26 Guide
Understand how capital gains tax (CGT) works when you sell an investment property in Australia. Learn about the 50% CGT discount, exemptions, and how to calculate your CGT bill.
How capital gains tax works on property in Australia
Capital gains tax (CGT) is not a separate tax — it is part of your income tax. When you sell an asset (like an investment property) for more than you paid for it, the profit (capital gain) is added to your taxable income for that financial year, and you pay tax at your marginal rate. **Key principle:** Your main residence (the home you live in) is generally CGT-free. CGT applies to investment properties, holiday homes, vacant land, and commercial property. **How to calculate your capital gain:** 1. **Sale price** (minus selling costs like agent fees, legal fees, advertising) 2. **Minus cost base** (purchase price plus buying costs like stamp duty, legal fees, plus capital improvements) 3. **Equals capital gain** (before discount) 4. **Apply the 50% discount** (if held for 12+ months) 5. **Add the discounted gain to your taxable income** and pay tax at your marginal rate **Example:** - Purchase price: $650,000 - Buying costs (stamp duty, legal, inspections): $30,000 - Capital improvements (new kitchen, bathroom reno): $45,000 - Cost base: $725,000 - Sale price: $950,000 - Selling costs (agent commission 2%, legal, marketing): $25,000 - Net sale proceeds: $925,000 - Capital gain: $925,000 - $725,000 = $200,000 - 50% discount: $200,000 × 50% = $100,000 added to your taxable income If your other taxable income is $100,000, your total taxable income becomes $200,000. The additional tax on the $100,000 capital gain would be approximately $38,500 (at marginal rates of 37% and 45%). This is a significant tax bill, which is why CGT planning is so important.
The 50% CGT discount explained
The 50% CGT discount is one of the most valuable tax concessions in Australia. If you hold an asset for at least 12 months before selling, you only pay tax on half the capital gain. **Who qualifies:** - Australian resident individuals - Trusts (which then distribute to individual beneficiaries who get the 50% discount) - Complying superannuation funds get a 33.33% discount (not 50%) - Companies do NOT get the CGT discount — they pay CGT on the full gain at the 25% or 30% company tax rate **The 12-month rule:** - You must own the asset for at least 12 months from the contract date of purchase to the contract date of sale - The dates that matter are when contracts are signed (exchanged), not settlement dates - If you buy on March 15, 2025, the earliest you can sell with the discount is March 16, 2026 **How it affects your decision-making:** If you are considering selling an investment property and you are close to the 12-month mark, it almost always pays to wait. The discount halves your CGT liability. **Example of the discount's value:** - Capital gain: $300,000 - Without discount (held less than 12 months): $300,000 added to income → tax of approximately $120,000 (at top marginal rates) - With discount (held 12+ months): $150,000 added to income → tax of approximately $52,000 - **Saving: approximately $68,000** **Important note for non-residents:** From June 2025, Australian non-residents (people living overseas) can no longer access the 50% CGT discount on property gains. This applies retroactively to gains accrued from May 8, 2012, onwards. If you are considering moving overseas and own Australian investment property, seek professional tax advice before leaving as the timing of your tax residency change can have a six-figure impact on your CGT bill.
Main residence exemption: when your home is CGT-free
Your main residence (primary home) is generally fully exempt from CGT. This is known as the main residence exemption, and it is one of the reasons Australians favour property investment. **To qualify for the full exemption:** - The property must be your home — where you actually live - You must have lived there throughout the entire period of ownership - You cannot have used it to produce income (e.g., renting out a room via Airbnb reduces the exemption proportionally) - The land must be 2 hectares or less **Partial exemptions apply when:** - You rented out part of your home (e.g., one room on Airbnb) — you apportion the gain based on the percentage of floor area rented - You used part of your home as a business or home office — a dedicated room for business reduces the exemption proportionally - You rented out the entire home for a period — the gain is apportioned between periods of residence and periods of income production **The 6-year absence rule:** If you move out of your home and rent it out, you can still claim the main residence exemption for up to 6 years, provided you do not claim another property as your main residence during that time. **Example:** You live in your Sydney apartment for 5 years, then move to Brisbane for work and rent out the Sydney apartment. As long as you move back within 6 years (or sell within 6 years), the entire gain is CGT-free. If you are away for more than 6 years, the gain is apportioned. **This rule resets:** If you move back into the property and re-establish it as your main residence, a new 6-year clock starts if you move out again. This makes it one of the most flexible CGT provisions in the tax law. **Couples and the main residence exemption:** A couple can only nominate one main residence between them. If you each own a property and live in separate homes, you need to choose which one is the main residence for CGT purposes (usually the one expected to have the larger capital gain).
How to reduce your CGT on an investment property
There are several legitimate strategies to minimise the CGT you pay when selling an investment property: **1. Maximise your cost base:** Keep records of every capital expense. Your cost base includes: - Purchase price and stamp duty - Legal and conveyancing fees (buying AND selling) - Building and pest inspection costs - Capital improvements (renovations, extensions, new fixtures — but NOT repairs) - Agent's commission on sale - Marketing and advertising costs for the sale - Quantity surveyor's fee for a depreciation schedule The difference between a repair (deductible immediately) and a capital improvement (added to cost base) matters. Replacing a broken window is a repair. Replacing all windows with double-glazing is a capital improvement. **2. Time your sale strategically:** - Sell in a financial year when your other income is low (retired, on leave, between jobs) - If your income is lower next financial year, arrange for the contract to be signed after July 1 - Remember: the contract date determines the financial year, not settlement **3. Use the 50% discount:** - Never sell within 12 months unless absolutely necessary - If you are close to the 12-month mark, delay the sale by even a few weeks **4. Consider contributing to super before selling:** - Make concessional contributions up to $30,000 to reduce your taxable income in the year of sale - Use carry-forward provisions if you have unused cap space from previous years - This can shift income from the 45% bracket down to the 37% bracket **5. Offset the gain with capital losses:** - Capital losses from shares, crypto, or other investments can offset property gains - If you have underperforming shares, consider selling them in the same financial year as the property to crystallise the loss - Capital losses can be carried forward indefinitely until used Use our CGT Calculator to model different sale scenarios and calculate your estimated tax liability.
CGT record-keeping requirements
The ATO requires you to keep records for CGT purposes for the entire time you own the asset, plus 5 years after you sell it. For a property held for 15 years, that means keeping records for 20 years. Here is what to keep: **Purchase records:** - Contract of sale - Settlement statement - Stamp duty receipt - Solicitor/conveyancer invoices - Valuation reports - Building and pest inspection reports **Ownership records:** - Receipts for all capital improvements (renovations, additions, structural work) - Depreciation schedules from your quantity surveyor - Records of any income earned from the property (rental statements) - Body corporate records (for strata) - Insurance claims that affected the property value **Sale records:** - Contract of sale - Settlement statement - Agent's commission invoice - Legal fees for the sale - Marketing and advertising costs - Any final repairs or touch-ups before sale **Digital tip:** Scan everything and store it in cloud storage (Google Drive, Dropbox). Physical receipts fade over time. The ATO accepts digital copies as valid records. **What happens if you lose records?** If you cannot prove your cost base, the ATO may use the market value at a certain date or make an estimate that may not be in your favour. For properties purchased before September 20, 1985, there is no CGT at all (pre-CGT assets). For properties purchased after that date but where records are lost, you may be able to use historical sales data, council valuations, or other evidence to reconstruct your cost base. **Key deadline:** CGT events must be reported in your tax return for the financial year in which the contract is signed. Missing this can result in penalties and interest charges from the ATO. If the gain is substantial ($500,000+), consider getting a private ruling from the ATO before lodging.
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General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.
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