Capital Gains Tax (CGT) is the tax you pay on profit when you sell an investment property. It's one of the most misunderstood aspects of Australian property investment — and getting the timing right can save tens of thousands of dollars.
What is Capital Gains Tax?
CGT is not a separate tax — it's a component of your income tax. When you sell a property for more than you paid for it, the profit (capital gain) is added to your taxable income in the year of sale, and you pay income tax on it at your marginal rate.
The 50% CGT discount
If you hold a property for more than 12 months before selling, you receive a 50% discount on your capital gain. This is one of the most valuable tax concessions in the Australian tax system. Holding a property for at least 12 months and one day is essential for any investment property.
What counts as your cost base?
Your capital gain is the sale price minus your "cost base." The cost base includes more than just the purchase price:
- Purchase price
- Stamp duty paid at purchase
- Legal and conveyancing costs (both purchase and sale)
- Real estate agent commission on sale
- Capital improvements (new bathroom, extension — not repairs or maintenance)
- Borrowing costs not deductible elsewhere
Maximising your cost base reduces your capital gain — keep receipts for every capital improvement and settlement cost.
The main residence exemption
Your principal place of residence (the home you live in) is generally exempt from CGT entirely. This is the most valuable CGT exemption in Australia. Key points:
- You must have lived in the property as your main residence for the entire period of ownership to get a full exemption
- If you rented out your main residence at any point, a partial exemption applies
- The "6-year rule" allows you to rent out your main residence for up to 6 years while retaining the full CGT exemption, provided you don't claim another property as your main residence during that period
Timing your sale strategically
Because CGT is added to your income, the year in which you sell matters enormously. Consider:
- Selling in a year when your income is lower (e.g., the year you retire, take parental leave, or start a business)
- Selling before 30 June vs. after — if you sell in late May, you pay CGT in the current tax year; if you sell in early July, you pay it 12 months later, giving you another year to plan
- If you're married and own jointly, the gain is split equally — potentially keeping both partners in lower tax brackets
Depreciation and CGT: the interaction
If you've claimed building depreciation (Division 43) on your investment property, your cost base is reduced by the amount depreciated — potentially increasing your capital gain when you sell. This is called a "depreciation claw-back." Speak to your accountant before selling a property where substantial depreciation has been claimed.
CGT and negative gearing
Negatively geared properties that have generated losses in prior years can sometimes offset capital gains — but only in limited circumstances. Capital losses from other investments can also offset your property capital gain. Your accountant should review your full tax position before any sale. See our Negative Gearing guide for the full picture.
Calculate your CGT
Use our Capital Gains Tax Calculator to estimate your CGT bill for any Australian investment property sale, including the 50% discount and your marginal tax rate.