Capital Gains Tax on Property in Australia: What You'll Owe and How to Reduce It

How Capital Gains Tax Works on Property

Capital gains tax (CGT) in Australia isn't a separate tax — it's part of your income tax. When you sell an investment property for more than you paid for it, the profit (the capital gain) is added to your assessable income for that financial year, and taxed at your marginal rate.

If your investment property sells for $850,000 and your cost base is $600,000, your capital gain is $250,000. If you've held the property for more than 12 months, only 50% of that gain ($125,000) is included in your taxable income. Added to a $120,000 salary, your total assessable income becomes $245,000 — and you'll pay tax on that at the applicable marginal rates.

Use our CGT calculator to model your specific scenario before you sell.

The 50% CGT Discount

The 50% discount for assets held more than 12 months is one of Australia's most valuable tax concessions. It applies to individuals and trusts (not companies), and it halves the taxable portion of any capital gain. Superannuation funds get a one-third discount instead.

The practical impact is significant. A $200,000 capital gain at a 45% marginal rate would cost $90,000 in tax without the discount. With the discount, only $100,000 is taxable, cutting the bill to $45,000. That's a $45,000 difference from holding the property for just one additional day past the 12-month mark.

If you're close to the 12-month mark when you're planning to sell, the maths almost always favours waiting.

What's Included in the Cost Base

The cost base isn't just what you paid for the property at purchase. It includes all the money you've spent acquiring and improving it, minus any deductions you've claimed for capital works over the years. Getting the cost base right can significantly reduce your taxable gain.

Legitimate cost base items include:

• Purchase price plus stamp duty
• Conveyancing and legal fees at purchase
• Building inspections and pest reports paid at purchase
• Capital improvement costs (extensions, renovations that increase the property's value)
• Selling costs: agent commission, legal fees, advertising

Items you cannot include: repairs and maintenance you've already claimed as tax deductions, interest on the investment loan (already deducted), and any capital works you've claimed depreciation on (these reduce your cost base).

Keep records of everything. A thorough cost base can shave tens of thousands off your taxable gain.

CGT and Negative Gearing: The Connection

Many investors accept negative gearing losses during the holding period in exchange for a capital gain at the end. It's worth understanding how these interact. The annual losses you claimed as tax deductions during the holding period have already been used to reduce your income each year. They don't reduce your capital gain at sale — the two mechanisms are separate.

This is why investment property decisions need to consider the full lifecycle: rental yield during holding, negative gearing tax savings year by year, and CGT at exit. Use our negative gearing calculator and rental yield calculator alongside the CGT calculator to model the complete picture.

Main Residence Exemption

Your principal place of residence (PPOR) is generally exempt from CGT. No gain, no tax. But there are common situations where partial CGT applies to the family home:

• You rented it out for a period before or during ownership
• You used part of the home for business purposes
• The land is more than two hectares
• You bought it as an investment before moving in

The six-year rule is also worth knowing: if you move out of your PPOR and rent it, you can treat it as your main residence for up to six years without triggering CGT — as long as you don't nominate another property as your PPOR during that time.

Legal Strategies to Reduce CGT

There's no shortage of advice online about avoiding CGT. Most of it ranges from overstated to illegal. These are the legitimate, ATO-accepted approaches:

• Hold beyond 12 months to access the 50% discount — the single most powerful lever
• Maximise your cost base by keeping meticulous records of all capital expenditure
• Offset gains with capital losses from other assets (shares, other properties sold at a loss)
• Time the sale for a low-income year — selling in a year where you've reduced your income (retired, taken leave, between jobs) lowers the effective tax rate on the gain
• Use superannuation contributions to reduce your assessable income in the year of sale — subject to contribution caps
• Hold via a trust structure — distributing the gain to lower-income beneficiaries can reduce the overall tax. Structure decisions need advice from a tax specialist before you buy, not after

Get the Right Tools and Advice

CGT on property is one of the most complex areas of Australian tax law. The ATO's own guidance runs to dozens of pages. A qualified tax accountant is well worth the fee when you're dealing with a significant gain — their advice typically saves multiples of their cost.

For the software side, dedicated tax software can help you model scenarios before committing to a sale date — browse Australian tax and property guides on Amazon AU to build your foundational knowledge.