- The CGT discount cuts your taxable gain by 50% once you've held the property for more than 12 months.
- Your main residence is usually exempt from CGT, but the rules change once you earn income from it.
- Keeping accurate records of your cost base can significantly reduce the CGT you owe when you sell.
Property capital gains tax applies whenever you sell an investment property for more than it cost you, and getting the sums wrong can turn a good sale into a stressful tax bill. If you’re an investor or a small business owner with a rental property, CGT is not optional information, it is part of planning the sale itself.
This guide walks you through how CGT on property works in Australia, how the 50% CGT discount applies, what happens to your main residence, and the legitimate ways you can reduce what you owe. None of this is personal tax advice, but it will help you ask your accountant the right questions.
How does capital gains tax work on property in Australia?
Property capital gains tax is triggered the moment you sign a contract to sell an investment property for more than your cost base. The gain gets added to your assessable income and taxed at your marginal rate, rather than at a separate flat rate. The event is dated to the contract, not the settlement, which matters if a sale spans two financial years.
Most residential and commercial investment properties are covered, along with vacant land bought for investment. Your own home is treated differently, which the main residence section below covers. If you’re unsure whether your situation counts as a CGT event at all, a property accountant can confirm it before you sign anything.
How much tax you actually pay depends on your total taxable income for the year, not on a fixed property tax rate. A large capital gain can also push you into a higher tax bracket for that year, which is worth planning around well before settlement.
Other events that can trigger CGT
Selling isn’t the only trigger. Losing the property to fire or another disaster, or having it compulsorily acquired, can also count as a CGT event under ATO rules.
How do you calculate CGT on an investment property sale?
Working out property capital gains tax starts with two numbers: your cost base and your capital proceeds. Subtract the cost base from the capital proceeds to get your gross capital gain, then apply any discount you’re entitled to.
Your cost base isn’t just the purchase price. It includes stamp duty, legal fees, agent’s commission on both the purchase and the sale, and the cost of capital improvements made while you owned the property. If you’ve already claimed capital works deductions on the property, for example for a structural renovation, those amounts generally can’t also be added to your cost base.
| Item | Illustrative amount (AUD) |
|---|---|
| Sale price (capital proceeds) | $700,000 |
| Cost base (purchase price plus buying and selling costs) | $520,000 |
| Gross capital gain | $180,000 |
| 12-month CGT discount (50%) | -$90,000 |
| Net taxable capital gain | $90,000 |
This is an illustrative example only, not personal advice, and it doesn’t reflect your individual marginal tax rate or any capital losses you might be carrying forward. If you want to understand how property accounting differs from general small business accounting, our accounting for property owners guide breaks down the difference.
Sleek’s property accountants can run this calculation against your real figures, including any losses you’re carrying forward.
What is the CGT discount and how does the 12-month rule work?
The CGT discount lets you reduce your capital gain by 50% if you’ve owned the property for more than 12 months and you’re an Australian resident for tax purposes. You exclude both the purchase date and the sale date when counting the 12 months, and the clock runs from the contract date if there is one.
Trusts get the same 50% discount, complying super funds get 33.33%, and companies can’t claim the discount at all. Foreign or temporary residents also miss out on the full discount for gains made after 8 May 2012, though a partial discount may apply for periods of Australian residency.
TIPIf you’re close to the 12-month mark, check the exact contract date before you sign anything. Selling a few days early can cost you half the discount.
Investors who provide affordable rental housing to eligible tenants may also qualify for an extra discount of up to 10%, taking the total discount as high as 60%. This is a narrow category with its own eligibility rules, so check it applies before assuming it does.
Does your main residence stay exempt from CGT?
Your main residence is usually exempt from CGT if it’s been your home for the whole time you owned it, hasn’t been used to earn income, and sits on two hectares or less of land. Meeting all three conditions means you pay no CGT and ignore any capital loss when you sell.
If you don’t meet every condition, for example you ran a home business from part of the house, you may still get a partial exemption.
Our resource on accounting for property owners explains how partial exemptions typically get worked out in practice.
What if you rented out your former home?
If you move out of your former home and rent it out, you can generally still treat it as your main residence for up to six years, known as the six-year rule. If you never earn rental income from the property after moving out, for example you leave it vacant, the exemption can continue indefinitely, provided you’re not treating another property as your main residence at the same time.
This is general information, not personal tax advice. Get personal advice from a qualified tax professional before you rely on the main residence exemption for your own sale.
What are legitimate ways to reduce property CGT?
The main legitimate levers are timing your sale past the 12-month mark, offsetting capital losses, keeping thorough records of your cost base, and choosing a sensible ownership structure. None of these are loopholes, they’re standard planning tools the ATO recognises.
Timing matters most. Selling even a few days after your 12-month anniversary can hand you a 50% discount you’d otherwise miss.
Capital losses from other investments, including shares, can offset your property gain in the same year or be carried forward to future years. Unused losses don’t expire, so a loss from years ago can still reduce a gain on this year’s property sale. This is one reason keeping a full record of your whole portfolio matters, not just the one property.
Ownership structure and record-keeping
Some investors consider holding property in a trust for flexibility around how gains are distributed among beneficiaries, though this needs proper legal and tax setup before you buy, not after settlement. For a broader look at what’s available, legitimate tax strategies covers options beyond property.
What records do you need, and how do you report CGT?
You need to keep everything connected to buying, holding, and selling the property, including the purchase contract, settlement statements, stamp duty receipts, loan documents, and receipts for capital improvements. The ATO requires these records to be kept for five years after you dispose of the property.
If you’ve owned the property for longer than five years, that clock only starts running from the sale date, not the purchase date. A property held for 15 years still needs its records kept for a total of 20 years.
Reporting happens in your income tax return for the year the contract was signed, not the year settlement occurred. If you’ve earned rental income along the way, it’s worth understanding how withholding and investment income rules interact with your overall tax position, especially if you’re a foreign resident owner. Digital copies of contracts, invoices, and bank statements are fine to keep, provided you can produce them if the ATO ever asks.
How Sleek helps you manage property CGT
Sleek’s property accountants model your capital gain before you list the property, so you know roughly what to expect at tax time. We check your cost base for missed deductions, confirm which discounts and exemptions apply, and our Sleek tax accountant team can keep your compliance on track after the sale settles. If you own more than one property, we can also look at your whole portfolio rather than just the one sale.
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Frequently Asked Questions
Do you have to pay CGT when you sell an investment property?
Yes, in most cases. Selling an investment property is a CGT event, and any capital gain is added to your assessable income in the year of the contract date. If you make a capital loss instead, you can use it to offset other capital gains, but you can’t use it to reduce your ordinary income.
How much is the CGT discount?
If you’re an Australian resident individual or trust and you’ve owned the property for more than 12 months, you can reduce your capital gain by 50%. Complying super funds get a 33.33% discount, and companies can’t use the discount at all. Eligible affordable housing providers may qualify for up to a 60% discount in total.
Is my main residence exempt from property capital gains tax?
Your home is generally exempt from CGT if it’s been your main residence for the whole time you owned it, wasn’t used to produce income, and sits on two hectares or less. If only some of these conditions apply, you may still get a partial exemption. The ATO’s own CGT property exemption tool can help estimate the exempt proportion.
What happens if I rented out my former home before selling it?
You can usually keep treating a former home as your main residence for up to six years while it’s rented out, known as the six-year rule. If you never earn rental income from it, the exemption can continue indefinitely, provided you don’t treat another property as your main residence at the same time. The six-year period restarts each time you move back in and then move out again.
What records do I need to keep for property CGT?
Keep every record connected to buying, holding, and selling the property, including contracts, stamp duty receipts, legal fees, and improvement costs. The ATO requires you to keep these records for five years after you dispose of the property. If you held the property longer than five years, the five-year clock still only starts from the sale date.
Are there legitimate ways to reduce property CGT?
Yes. Timing your sale for after you’ve held the property for over 12 months, offsetting capital losses, and choosing your ownership structure carefully are all legitimate approaches. A property accountant can help you work through which options suit your circumstances, particularly if you hold more than one investment property.
Does CGT apply if I sell a property to a family member below market value?
Yes. If you sell or gift a property for less than market value, or to a party you’re not dealing with at arm’s length, the ATO can substitute the market value for your capital proceeds when working out your gain. This stops taxpayers from artificially reducing a capital gain through a low sale price. A formal valuation at the time of transfer is the safest way to support the figures you use.
