Capital Gains Tax on Property Australia: What You Actually Pay
Capital gains tax (CGT) on property is not a separate tax in Australia — it is the income tax you pay on the net capital gain from selling an asset. When you sell an investment property, the profit is added to your taxable income for that year and taxed at your marginal rate. If you held the property for more than 12 months, you are entitled to a 50% CGT discount — halving the capital gain before it is added to your income. The result is that selling a $1 million property for a $300,000 gain at a 47% marginal rate costs $70,500 in CGT — not $141,000.
How CGT on Property is Calculated
The capital gain is calculated as: Sale price − Cost base
The cost base includes: original purchase price, stamp duty, conveyancing fees, building inspection costs, any capital improvements made during ownership, and selling costs (agent commission, legal fees, marketing). Running costs like council rates, property management fees, and mortgage interest are generally not part of the cost base — they are deducted as rental income expenses in the years they were incurred.
If you held the property for more than 12 months, apply the 50% CGT discount: Discounted capital gain = Net capital gain × 50%
The discounted gain is added to your taxable income and taxed at your marginal rate.
| Item | Amount |
|---|---|
| Sale price | $950,000 |
| Purchase price | $600,000 |
| Stamp duty (purchase) | $22,000 |
| Renovations (capital) | $45,000 |
| Selling costs | $18,000 |
| Cost base | $685,000 |
| Net capital gain | $265,000 |
| 50% discount (held 12+ months) | −$132,500 |
| Taxable capital gain | $132,500 |
| Additional income tax at 39% marginal rate | $51,675 |
The Main Residence Exemption
Your primary home is fully exempt from CGT if: you lived in it for the entire ownership period, you never rented it out, and you never used it for any income-producing purpose. This is the main residence exemption — one of the most valuable tax concessions in the Australian system.
Partial exemption situations:
If you rented out your home for part of the ownership period, the CGT exemption applies only to the periods it was your main residence. The calculation is based on the proportion of time (in days) it was your main residence vs total ownership days.
The 6-year rule (absence rule) allows you to treat your home as your main residence for up to 6 years after you vacate it, provided you do not claim any other property as your main residence during that period. This is valuable for investors who move out and rent their home — the clock starts when you move out, and you can sell within 6 years without CGT on the gain during the rental period.
If you rented out part of your home (e.g., a granny flat or spare room), a partial CGT exemption applies for the portion used for income production.
CGT Discount Rates by Entity Type
| Entity | CGT Discount (12+ months) |
|---|---|
| Individual | 50% |
| Super fund (accumulation) | 33.33% |
| Super fund (pension phase) | 100% (fully exempt) |
| Trust | 50% (if distributed to individual) |
| Company | 0% (no CGT discount) |
Holding investment properties inside a company structure means losing the 50% CGT discount — a significant disadvantage compared to holding in individual or trust structures. Companies do, however, have a flat 25–30% tax rate, which may still be beneficial for high marginal rate individuals on the net capital gain depending on the numbers.
Reducing CGT: Legal Strategies
Timing the sale: If you sell an investment property late in the financial year, consider whether deferring settlement to the next financial year reduces your CGT bill — particularly if you expect lower income in the next year (e.g., stopping work, retiring).
Carry-forward super contributions: A large carry-forward concessional super contribution in the year of the sale reduces taxable income, potentially moving the capital gain to a lower marginal rate bracket. See our guide to catch-up super contributions for details.
Capital losses: If you have unrealised capital losses in your portfolio (shares, other properties), crystallising those losses in the same year as a capital gain directly reduces the taxable gain. Carry-forward losses from previous years can also be applied.
Splitting ownership with lower-income spouse: If the property is owned jointly with a lower-income partner, the capital gain is split 50/50 — the lower-earning partner pays their marginal rate on their half. Purchasing in joint ownership is a long-term strategy, not something that can be retroactively applied at the point of sale.
Frequently Asked Questions
- Do I pay CGT when I inherit a property?
- Generally not at the time of inheritance. Inheriting a property is not a CGT event for the beneficiary. CGT becomes relevant when you later sell the inherited property. If the property was the deceased's main residence and you sell within 2 years of death, the main residence exemption applies. If you hold and rent the property, CGT applies to the gain from the date of death (using the date-of-death market value as your cost base).
- What happens if I sell at a loss?
- A capital loss can only be used to offset capital gains — not other income. If your capital loss exceeds your capital gains in a year, the excess is carried forward to future years to offset future capital gains. Capital losses cannot reduce your ordinary income (salary, rental income, etc.).
- Is there CGT on the family home if I also use it for Airbnb?
- Yes, partially. If you rent out part or all of your main residence for Airbnb income, the main residence exemption is partially reduced. The proportion of your home used for income production (by floor area) and the time periods it was rented are used to calculate the taxable gain on eventual sale. The ATO has specifically addressed Airbnb and holiday letting in its guidance.
