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Capital gains tax on investment property in Australia is not a separate flat tax - the net capital gain (after the 50% discount if held 12+ months) is added to your assessable income and taxed at your marginal rate. For a property sold with a $300,000 gain at the 37% marginal rate with the discount applied, CGT is approximately $55,500. Proper cost base records, timing strategy, and professional tax advice can significantly reduce the amount payable.
Step 1: Calculate your capital gain = sale price minus cost base. Your cost base includes the original purchase price, stamp duty and legal fees, buying and selling agent costs, and capital improvements. Step 2: If you've owned the property for more than 12 months as an Australian resident, apply the 50% CGT discount to your gross capital gain. Step 3: Add the discounted gain to your taxable income for the year of sale. Step 4: Pay income tax at your marginal rate on the total. Example: Bought for $600,000, sold for $900,000. Gross gain $300,000. After 50% discount: $150,000. In the 37% tax bracket: $55,500 CGT payable.
The 50% CGT discount halves your taxable capital gain if you've owned the asset for more than 12 months before selling. It applies to Australian residents who are individuals, trusts (distribution to individuals), and most superannuation funds (which use a 33.3% discount instead). If you sell an investment property within 12 months of purchase, the full gross gain is included in your taxable income - no discount applies. Timing your sale past the 12-month anniversary can halve your tax bill.
The principal place of residence (PPR) exemption completely exempts the family home from CGT. To qualify, the property must have been your main residence for the entire period you owned it, must not have been used to produce income during that period, and the land must not exceed 2 hectares. If you only lived in the property for part of your ownership period (e.g., it was later rented out), a partial exemption applies based on the proportion of time and floor area used as your main residence.
The 6-year rule (Section 118-145 ITAA 1997) allows you to treat a property as your main residence for up to 6 years after you move out - even if you rent it out during that time. This means no CGT applies if you sell within 6 years of moving out, provided you don't treat another property as your main residence simultaneously. If you move back in and then move out again, the 6-year clock resets. Seek tax advice on partial periods - the ATO's formula can get complex.
The cost base has 5 elements: (1) the purchase price plus incidental acquisition costs - stamp duty, legal fees, mortgage registration; (2) capital improvement costs - renovations, extensions (not repairs); (3) costs of defending or preserving title; (4) capital expenditure that enhanced the asset's market value; and (5) certain ongoing costs if you can't claim them as deductions (e.g., rates and interest if the property was your home). For investors who have claimed depreciation, the cost base must be reduced by the amount of building allowance (Division 43) deductions previously claimed.
Key strategies: (1) Hold for 12+ months to access the 50% CGT discount. (2) Time the sale for a year when your income is lower - retirement year, parental leave, or a year between jobs. (3) Sell in the same income year as a capital loss to offset gains. (4) Structure ownership to split the gain across two taxpayers (if jointly owned). (5) Ensure your cost base includes all eligible costs. (6) If you're within 6 years of moving out, selling before the 6-year clock expires may qualify for main residence exemption. Always consult a registered tax agent before implementing CGT strategies.
Inherited properties have special CGT rules. If the deceased acquired the property before 20 September 1985 (pre-CGT), you inherit a cost base equal to the market value at the date of death - no CGT up to that date. If the property was post-CGT, you inherit the deceased's original cost base. If the property was the deceased's main residence and you sell within 2 years of their death, it is fully exempt from CGT. Beyond 2 years, a partial exemption may apply. Superannuation beneficiaries and non-resident beneficiaries have additional rules.
Yes. Capital losses from one asset (e.g., shares) can offset capital gains from another (e.g., investment property) in the same year. If your capital losses exceed your capital gains, the net loss is carried forward to future years - it cannot be offset against ordinary income. Capital losses cannot be distributed to another person. Apply capital losses before the 50% CGT discount to maximise the discount's effect.
Non-residents of Australia for tax purposes lose access to the 50% CGT discount on Australian real estate for gain accrued while they were non-resident. Foreign residents pay CGT on taxable Australian property (including investment property) without access to the 50% discount - effective CGT rates of 32.5%–45% apply on the full gain. Main residence exemptions were significantly restricted for foreign residents from July 2020. If you plan to sell Australian property while living overseas, consult a registered tax agent familiar with the foreign resident CGT withholding regime.
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