Capital Gains Tax on Property in Australia: What You Need to Know

Capital Gains Tax (CGT) is one of the most significant — and most misunderstood — taxes affecting Australian property investors. Whether you're selling an investment property, a holiday home, or even certain business assets, understanding how CGT works can save you thousands of dollars. This guide breaks it down in plain English.

What Is Capital Gains Tax?

CGT isn't a separate tax — it's actually part of your income tax. When you sell an asset for more than you paid for it, the profit (your "capital gain") is added to your taxable income for that financial year and taxed at your marginal rate.

Your main residence (the home you live in) is generally exempt from CGT. Investment properties, holiday homes, vacant land, and shares are all subject to CGT when sold.

How Is Capital Gain Calculated?

The basic formula is straightforward:

Capital Gain = Sale Price − Cost Base

Your cost base includes the original purchase price plus legitimate costs such as:

• Stamp duty and conveyancing fees paid at purchase
• Agent commissions and legal fees at sale
• Capital improvements made to the property (e.g. renovations)
• Costs to establish or defend ownership

Note: Ongoing expenses like interest, rates, and repairs are generally deductible against rental income rather than added to the cost base.

The 50% CGT Discount

If you've owned the asset for more than 12 months, you're entitled to a 50% discount on your capital gain. This is one of the most valuable concessions in the Australian tax system.

For example: If you make a $200,000 capital gain on an investment property you've owned for two years, only $100,000 is added to your taxable income. If you're in the 37% tax bracket, your CGT bill is $37,000 — not $74,000.

2025–26 Income Tax Rates (Including CGT)

Main Residence Exemption

Your primary home is generally fully exempt from CGT. However, partial exemptions apply in several situations:

• Renting out part of your home — The portion used to generate income is subject to CGT proportionally.
• Using your home for business — If you claim a home office deduction, part of any future gain may be taxable.
• Absence rule — If you move out and rent your home, you can treat it as your main residence for up to 6 years (provided you don't claim another property as your main residence).

Practical Example

Sarah bought an investment property in Sydney in 2020 for $650,000 (including $20,000 in stamp duty and legal fees). She sold it in 2026 for $950,000, paying $18,000 in agent fees. She also spent $30,000 on a kitchen renovation during ownership.

• Sale price: $950,000
• Cost base: $650,000 + $20,000 + $18,000 + $30,000 = $718,000
• Capital gain: $232,000
• After 50% discount (held >12 months): $116,000 added to income
• At 37% marginal rate: approximately $42,920 CGT payable