Capital Gains Tax (CGT) is one of the most significant — and most misunderstood — taxes affecting Australian property investors. Get it wrong and you could be handing the ATO far more than you need to. Get it right and the 50% CGT discount alone can cut your tax bill in half.
This guide covers everything: how CGT is calculated on property, what goes into the cost base, how the 50% discount works, the main residence exemption and its limits, the six-year absence rule, negative gearing interaction, capital losses, and the proposed 2027 changes every investor needs to know about.
CGT is not a separate tax — it's part of your income tax. When you sell an asset (like an investment property) for more than you paid for it, the profit is called a capital gain. That gain is added to your taxable income for that financial year and taxed at your marginal income tax rate.
The ATO applies CGT to most assets acquired after 20 September 1985 (known as "post-CGT" assets). Property purchased before that date is generally exempt.
Assets subject to CGT include:
Your main residence — the home you actually live in — is generally fully exempt from CGT. But there are important exceptions to this rule.
The basic formula is:
Capital Gain = Sale Price − Cost Base
The cost base is not just what you paid for the property. It includes a range of legitimate costs that reduce your taxable gain:
Key point: Keeping meticulous records from the day you purchase an investment property is essential. Every improvement receipt, every legal fee, every commission invoice directly reduces your CGT liability years later.
If you've owned the property for more than 12 months before selling, you're entitled to a 50% discount on your capital gain. This is one of the most valuable concessions in the Australian tax system.
In practical terms: if you make a $300,000 capital gain on a property held for more than 12 months, only $150,000 is added to your taxable income. The other $150,000 is simply not taxed.
Sarah bought an investment property in Brisbane in 2019 for $480,000. She sold it in 2026 for $780,000.
Sale price: $780,000
Cost base: $480,000 purchase + $18,000 stamp duty + $25,000 kitchen renovation + $16,000 agent fees at sale = $539,000
Capital gain: $780,000 − $539,000 = $241,000
After 50% discount (held >12 months): $120,500 added to taxable income
At 37% marginal tax rate: approximately $44,585 CGT payable
Without the 50% discount, Sarah would have owed ~$89,170. The discount saved her over $44,000.
Your capital gain (after any applicable discount) is added to your other income for the year and taxed at your marginal rate:
| Taxable Income | Tax Rate |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 16% |
| $45,001 – $135,000 | 30% |
| $135,001 – $190,000 | 37% |
| $190,001+ | 45% |
Note: If the capital gain pushes your income into a higher tax bracket, only the portion of income in that bracket is taxed at the higher rate. The Medicare Levy (2%) also applies to your total taxable income.
Your primary home — the one you live in — is generally fully exempt from CGT. This is the main residence exemption, and it's one of the most valuable tax concessions in Australia. There is no dollar limit on this exemption.
However, the exemption is not always black and white. Partial exemptions apply in several common situations:
If you rent out a room or portion of your home, the proportion of the property used to generate income becomes subject to CGT. For example, if you rent out 25% of your home's floor space, 25% of any eventual capital gain may be taxable.
Claiming a home office deduction can potentially trigger a partial CGT liability on your main residence. The ATO's position is nuanced here — general "working from home" doesn't necessarily affect the exemption, but having a dedicated room used exclusively for business can. Speak to a tax agent if you regularly claim home office expenses.
This is where the six-year absence rule applies (see below).
Foreign residents who sell Australian property are no longer entitled to the main residence exemption from 1 July 2020. There are limited grandfathering provisions for properties purchased before 9 May 2017.
One of the most useful — and most overlooked — CGT rules in Australia is the six-year absence rule. It works like this:
If you move out of your main residence and rent it out, you can continue to treat it as your main residence for CGT purposes for up to six years — as long as you don't declare another property as your main residence at the same time.
Practically, this means if you sell within six years of moving out, you may pay zero CGT on the entire gain — even though the property was rented and generating income the whole time.
Tom bought a home in Melbourne in 2015 for $550,000 and lived in it as his main residence.
In 2019, Tom moved overseas for work and started renting the property out for $2,400/month.
In 2024 (five years later), Tom sold the property for $850,000.
Because he sold within six years of moving out, and did not claim another property as his main residence, Tom paid $0 CGT on the $300,000 gain.
If Tom had waited until 2026 (seven years after moving out), the portion of gain attributable to the period beyond six years would have been taxable.
If you sell a property at a loss — where the sale price is less than the cost base — you have a capital loss. Capital losses can be used to reduce capital gains in the same year or carried forward indefinitely to offset future gains. They cannot be used to reduce ordinary income (wages, salary, rent).
For example: if you make a $50,000 capital gain on one property and a $20,000 capital loss on another in the same financial year, you only pay CGT on the net $30,000 gain.
Capital losses from assets that are exempt (like your main residence) cannot be used. You can't claim a loss on the sale of a home that was entirely exempt from CGT.
Many Australian investors negatively gear their investment properties — meaning the rental income is less than the interest and expenses, creating a tax deduction. It's important to understand how this interacts with CGT:
Smart investors model both the annual negative gearing benefit and the eventual CGT liability together, not separately.
The 50% CGT discount on assets held for more than 12 months has been the cornerstone of Australian property and share investment strategy for decades. However, there have been ongoing policy discussions about reforming this discount, potentially from 1 July 2027, replacing it with an inflation-adjustment mechanism.
Under a proposed change, instead of discounting the gain by 50%, you would adjust the cost base for inflation over the ownership period — meaning properties held in high-inflation periods may see a smaller taxable gain, but the overall benefit could be less predictable than the flat 50% discount.
Important: As of June 2026, no legislation enacting these changes has passed. Always check current ATO guidance and consult a registered tax agent before making decisions based on proposed — but not yet enacted — tax changes.
When you inherit property, you generally don't pay CGT at the time of inheritance. The CGT event occurs when you eventually sell. The cost base is typically reset to the market value at the date of death, which can significantly reduce your eventual CGT liability.
If you own a property jointly, each owner is assessed on their proportional share of the capital gain. For example, two equal co-owners of an investment property each declare 50% of the gain on their respective tax returns — potentially at different marginal rates.
CGT applies differently in trusts and self-managed super funds. SMSFs in accumulation phase pay 15% tax on capital gains; in pension phase, gains are entirely tax-free. Trust structures can distribute gains to beneficiaries in lower tax brackets. These are specialist areas — always seek professional advice.
Model your property sale scenario — including the 50% discount, your marginal rate, and cost base inputs.
Open Free CGT Calculator →Usually no — your main residence is exempt from CGT. But exceptions apply if you used part of it for business or rental income, or if you're a foreign resident. If your home was always your primary residence with no income-generating use, you pay zero CGT on the sale.
CGT is declared and paid through your annual income tax return for the financial year in which the sale contract was signed (not when settlement occurs). If you sell in March 2026, the CGT is included in your 2025–26 tax return, due by 31 October 2026 (or later if using a tax agent).
Not entirely. Trusts are subject to CGT just like individuals. However, trusts can distribute gains to beneficiaries in lower tax brackets, potentially reducing the overall tax paid. The 50% CGT discount also applies to trusts (and can be passed through to beneficiaries). This is a specialist area — always get advice before restructuring ownership.
A capital loss can be used to offset capital gains in the same year, or carried forward indefinitely. You cannot use a capital loss to reduce your ordinary income (wages, rent, business income).
Yes, generally. However, there are specific small business CGT concessions that can significantly reduce or eliminate CGT for qualifying farm and business assets. These are complex and require specialist advice.
State revenue offices report property transactions to the ATO. The ATO cross-references these against tax returns. Failing to declare a capital gain is considered tax evasion and can result in penalties, interest, and prosecution in serious cases.
Yes. Australian tax residents are taxed on worldwide income and capital gains, including gains on overseas property. You may be able to claim a foreign tax credit for tax already paid in the country where the property is located, to avoid double taxation.
Mike Backman — Founder of Aussie Property & Crypto Calc. Mike researches Australian property, taxation and personal finance and maintains all calculators using ATO, ASIC, RBA and state government data.
Last updated: 19 July 2026 · About this site · Report an error