Update: Australian tax law has changed (last reviewed 5 September 2026)
The Treasury Laws Amendment (Tax Reform No. 1) Act 2026, passed 26 June 2026, changes how negative gearing and capital gains tax apply to Australian residential property from 1 July 2027. In summary: negative gearing will be limited to newly built properties (properties held at 7:30pm AEST 12 May 2026 are grandfathered), and the 50% CGT discount is replaced by cost base indexation with a 30% minimum tax rate on capital gains.
Parts of this article may not yet reflect those changes. Please confirm the current rules on the ATO website and speak to a registered tax agent before acting. This site provides general information only.
Capital Gains Tax (CGT) is the tax you pay when you sell an investment property for more than you paid for it. In Australia, CGT is not a separate tax — it is included in your assessable income for the financial year of the sale, taxed at your marginal rate. Understanding how CGT works, how to calculate it, and how to legally minimise it is essential for every Australian property investor. This is the complete guide.
How CGT Works on Investment Property in Australia
When you sell an investment property, your capital gain is calculated as: sale price minus cost base. The cost base includes the original purchase price plus all associated purchase costs (stamp duty, conveyancing, building inspection), improvement costs (capital works, renovations that increase value), and selling costs (agent commission, conveyancing, advertising). It does not include costs you have already claimed as tax deductions — for example, repair costs you deducted as maintenance cannot also be added to the cost base. The resulting capital gain is added to your taxable income for that financial year and taxed at your marginal rate. If you are in the top bracket (45% + 2% Medicare levy), CGT at your marginal rate can be as high as 47%.
The 50% CGT Discount
The single most important CGT strategy for Australian property investors is simply: hold the property for more than 12 months. If you hold for over 12 months before selling, you are entitled to a 50% CGT discount on the capital gain. The net capital gain after the 50% discount is then added to your income and taxed at your marginal rate. Example: you buy for $500,000 and sell for $850,000. Capital gain = $350,000. After 50% discount = $175,000 added to your income. At a 37% marginal rate, your CGT = $64,750 — instead of $129,500 without the discount. The 50% discount is available to individuals and trusts (not companies). Superannuation funds receive a 33.3% discount instead.
CGT Calculation Example — $350,000 Gain
Holding for 12+ months halves your CGT bill. Selling in a year with lower personal income further reduces the effective tax rate — timing the sale to a low-income year can save tens of thousands of dollars.
Strategies to Legally Reduce CGT
1. Hold for more than 12 months — the 50% discount is the single biggest CGT reducer available and costs nothing except patience. 2. Time the sale to a low-income year — if you plan to take parental leave, go part-time, retire, or have significant deductible losses in a given financial year, selling in that year reduces the marginal rate applied to your capital gain. 3. Offset against capital losses — if you have capital losses from other investments (shares, other property), these can be offset against your capital gain before the 50% discount is applied. 4. Maximise your cost base — ensure every legitimate cost base item is included: stamp duty, conveyancing, building inspection, all capital improvement costs (extensions, renovations, new kitchen or bathroom, landscaping that adds value). Keep all receipts from settlement date. 5. Sell via a trust structure — discretionary trusts can distribute capital gains to lower-income beneficiaries, reducing the effective marginal rate applied. This requires the right structure from the start — you cannot retrospectively move a property into a trust after purchase. 6. Don’t flip properties — if you regularly buy and sell properties in short timeframes, the ATO may classify your activity as a business or profit-making scheme, removing the 50% CGT discount and treating gains as ordinary income.
CGT and Your Main Residence
Your principal place of residence (PPR) is generally exempt from CGT while you live in it. If you move out and rent it, you can continue to claim the main residence exemption for up to 6 years under the 6-year rule — provided you do not declare another property as your main residence during that period. This is one of the most powerful CGT strategies in Australian property law and is worth understanding if you are considering renting out your home. Speak to a tax accountant before making any decisions.
CGT is not avoidable — but it is manageable. The 12-month hold rule, timing your sale strategically, and maximising your cost base are all legal, straightforward strategies that can save Australian property investors tens of thousands of dollars. Work with a qualified tax accountant before any sale decision.
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General Advice Warning: This article is general in nature and does not constitute personal financial advice. Please consult a licensed financial adviser before making investment decisions.
