Capital Gains Tax (CGT) is the tax you pay on profit when you sell an investment property. It is part of income tax, so when you sell and what else you earn that year change the bill.

What is Capital Gains Tax?

CGT is not a separate tax. It is 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.

Example: you bought an investment property for $450,000 in 2020 and sell it for $700,000 in 2026: a $250,000 capital gain (before purchase and sale costs, which reduce it). The 50% discount makes the taxable gain $125,000. On top of a $90,000 income it is taxed across three brackets at 2026–27 rates: $45,000 at 30%, $55,000 at 37% and $25,000 at 45%, plus the 2% Medicare levy. The CGT is $47,600, an average of 38%. (Taxing all of it at the top rate would give $58,750, which overstates it.)

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. The 12 months run between the two contract dates, not counting the day you bought or the day you sold.

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)
The contract date, not settlement, sets the year: a contract signed in late June falls in that financial year; one signed in early July falls in the next, so the tax is due a year later
A jointly owned property's gain is split by ownership share (equally for joint tenants), so each owner's share is taxed at their own rates

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, which can increase 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

Rental losses are revenue losses: they reduce your taxable income in the year they occur. Capital losses from other investments do offset a property capital gain, and are applied before the 50% discount. 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.

Important: This guide is general information only. CGT calculations involve many variables specific to your situation. Always consult a registered tax agent or accountant before making decisions based on tax strategy.