Capital Gains Tax Guide for Property Investors (Australia)

Capital gains tax (CGT) on Australian investment property is calculated by adding the capital gain to your taxable income in the year you sell. The amount payable depends on your holding period, your income, and your cost base. Australian resident individuals who held the property for at least 12 months can apply a 50% discount, halving the taxable gain. On a $200,000 capital gain, the discount reduces the taxable amount to $100,000, which is then taxed at your marginal rate.

What is capital gains tax on property in Australia?

Capital gains tax (CGT) is not a separate tax in Australia — it is the income tax you pay on a capital gain when you sell an asset for more than its cost base (ATO — Capital gains tax overview). For investment property, the capital gain is added to your other taxable income in the financial year you sell, and the total is taxed using the standard income tax brackets. This means the effective CGT rate depends on how much other income you earn that year. A capital gain of $150,000 added to a $100,000 salary is taxed very differently from the same gain added to a $40,000 income.

The CGT event generally occurs on the date the sale contract is signed (exchanged), not the settlement date (ATO — CGT events). This is important if the contract date and settlement date fall in different financial years, because the year of the CGT event determines which year the gain is included in your return.

How is CGT calculated on investment property?

CGT on investment property is calculated in three steps: determine the cost base, subtract it from the sale price, then apply any applicable discount.

Step 1: Work out the cost base

The cost base is the total of all acquisition, holding, and disposal costs recognised by the ATO (ATO — Cost base of asset). The higher your cost base, the smaller the capital gain and the less tax you pay. Keep records of every cost from the day you purchase to the day you sell.

Capital works deductions (Division 43) you were able to claim can reduce the relevant capital costs included in your cost base (subject to exceptions) (ATO — Cost base adjustments for capital works). This is explained further below.

Source: ATO — Cost base of asset, retrieved 9 Feb 2026.

Step 2: Calculate the capital gain

Capital gain = Sale price - Cost base

If the result is negative, you have a capital loss, not a capital gain. Capital losses can only offset capital gains, not salary or other income (ATO — Using capital losses to reduce capital gains).

Step 3: Apply the 50% CGT discount (if eligible)

If you are an Australian resident individual and you held the property for at least 12 months, the taxable capital gain is reduced by 50%.

Taxable capital gain = Capital gain x 50%

This discounted amount is then added to your other income for the year and taxed at your marginal rate.

The 50% CGT discount: the single biggest factor

The 50% CGT discount is the most significant factor in reducing CGT on investment property. The table below shows the tax impact with and without the discount at different capital gain levels, assuming a 30% marginal rate.

Note: actual tax may vary because the gain can push you into higher brackets. This table uses a flat 30% rate for illustration. The discount is available to individuals and trusts, but not companies. Foreign residents are not eligible for the 50% discount for CGT events after 8 May 2012.

Source: ATO — CGT discount, retrieved 9 Feb 2026.

The 6-year absence rule: keeping the main residence exemption

The 6-year absence rule (sometimes called the “6-year CGT rule”) is a significant CGT provision for property investors. If a property was your main residence before you moved out and started renting it, you can choose to continue treating it as your main residence for CGT purposes for up to 6 years. During this period, any capital gain on the property may be fully exempt from CGT. For a detailed explanation including worked examples, common traps, and planning strategies, see our CGT 6-year absence rule guide.

How the 6-year rule works

When you move out of your main residence, you can choose to treat it as your main residence for up to 6 years, regardless of whether the property is rented out or left vacant. The key conditions are:

1. The property must have been your main residence before you moved out. You must have actually lived in it, not just owned it.
2. You cannot treat another property as your main residence during the same period. If you buy a new home and nominate it as your main residence, the former home loses its exemption for the overlapping period.
3. You must not have first used the property to produce income before establishing it as your main residence. The property needs to have been your home first.
4. The 6-year period restarts if you move back into the property and re-establish it as your main residence, then move out again. Each absence starts a fresh 6-year clock.

6-year rule: worked example

Sarah buys a unit in Sydney for $500,000 in 2018 and lives in it as her main residence. In January 2021, she moves to Brisbane for work and rents out the Sydney unit. She does not buy a new home in Brisbane (she rents instead).

• January 2021: Sarah moves out. The 6-year clock starts.
• 2021-2026: The Sydney unit is rented. Sarah chooses to treat it as her main residence under the 6-year rule. She does not nominate any other property as her main residence.
• December 2026: Sarah sells the Sydney unit for $750,000 (within the 6-year window).

Result: The entire $250,000 capital gain may be exempt from CGT under the main residence exemption extended by the 6-year rule. Sarah pays no CGT on the sale.

If Sarah had sold in February 2028 (more than 6 years after moving out), the exemption would not cover the full period. A partial exemption would apply based on the proportion of time the property was her main residence.

What happens if you exceed 6 years?

If you sell after the 6-year period has elapsed, the exemption is not lost entirely. Instead, a partial exemption applies. The gain is apportioned based on the number of days the property qualified as your main residence versus the total ownership period. You still benefit from the time you lived in the property plus the 6 years of deemed residence.

Can you use the 6-year rule and buy a new home?

Yes, but with a significant trade-off. You can only have one main residence for CGT purposes at any given time. If you buy a new home and nominate it as your main residence, the 6-year rule stops applying to the former home for that overlapping period. In practice, this means:

• If you rent (not buy) in the new location, the 6-year rule on the former home stays intact.
• If you buy a new home and want the main residence exemption on the new home, the former home becomes a standard investment property for CGT purposes from the date you nominate the new home.

This is a common planning decision for investors who are relocated for work. The difference between renting and buying in the new location can mean hundreds of thousands in CGT.

Common 6-year rule mistakes

1. Assuming the rule applies automatically. You need to choose to apply the rule (it is an election in your tax return). If you do not actively choose, the default position may result in a taxable gain.
2. Nominating two main residences. You cannot claim the exemption on two properties for the same period. Buying a new home and treating it as your main residence ends the 6-year rule on the former home for that overlap.
3. Exceeding 6 years without realising. The 6-year clock is strict. If you sell in year 7, the gain is partly taxable. Track the date you moved out.
4. Forgetting to re-establish residence. If you move back in briefly but do not genuinely re-establish the property as your main residence (for example, you stay for two weeks), the 6-year clock may not restart. The ATO looks at whether you genuinely lived there.

Source: ATO — Treating a dwelling as your main residence after you move out, retrieved 9 Feb 2026.

Main residence exemption basics

Your main residence (the home you live in) is generally fully exempt from CGT when you sell (ATO — Your main residence (home)). You do not need to have lived in the property for the entire ownership period, but it must have been your main residence for at least part of the time. A partial exemption applies if the property was used to produce income for part of the ownership period (for example, renting out a room or the entire property while you lived elsewhere).

The main residence exemption cannot apply to a property you never lived in. An investment property purchased solely for rental income does not qualify.

How Division 43 deductions affect your CGT cost base

Division 43 capital works deductions (the 2.5% annual building depreciation) (ATO — Capital works deductions (Div 43)) reduce the property’s cost base when you sell. Every dollar of Div 43 deductions you claimed is subtracted from the cost base, increasing the capital gain at sale. This is a common surprise for investors who have been claiming depreciation for years.

Example: You claimed $40,000 in Div 43 deductions over 10 years of ownership. Your cost base at sale is reduced by $40,000, increasing your capital gain by the same amount.

This does not mean claiming depreciation is a bad idea — the annual tax savings usually outweigh the eventual CGT impact, especially with the 50% discount. But you must account for it when estimating your eventual sale outcome.

Division 40 plant and equipment deductions do not reduce the cost base for CGT purposes. See our depreciation guide for more detail on both divisions.

Does negative gearing reduce the CGT cost base?

This is a common point of confusion. No — negative gearing deductions do not reduce your cost base for CGT purposes. Rental deductions such as interest, property management fees, insurance, repairs, council rates, and water charges are income deductions. They reduce your taxable income in the year they are incurred. They have no effect on the cost base of the property when you eventually sell.

The one exception is Division 43 capital works deductions, which serve a dual purpose: they reduce your taxable income each year (like other rental deductions) and they also reduce your cost base at sale. This is why Div 43 is treated separately in CGT calculations.

In short:

• Interest, insurance, management fees, repairs, rates — income deductions only. No effect on cost base.
• Division 43 capital works — income deduction AND cost base reduction.
• Division 40 plant and equipment — income deduction only. No effect on cost base.

See our negative gearing guide for a full breakdown of deductible expenses.

Worked examples

Example 1: Short-term hold (no CGT discount)

Tom buys an investment unit for $450,000 and sells it 10 months later for $500,000.

If Tom earns $90,000 in other income, the $21,500 is added to his taxable income. At a 30% marginal rate, the estimated additional tax is approximately $6,450.

Example 2: Long-term hold (with CGT discount)

Lisa buys the same unit for $450,000 and sells it 5 years later for $620,000. She claimed $18,000 in Div 43 deductions over the 5 years and spent $12,000 on a bathroom renovation.

If Lisa earns $90,000 in other income, the $72,400 is added to her taxable income. The estimated additional tax is approximately $26,700. Without the 50% discount, the additional tax would be approximately $48,500 — the discount saved Lisa roughly $21,800.

Example 3: 6-year rule scenario

James buys an apartment for $550,000 in 2017 and lives in it until March 2020. He then moves interstate for work and rents the apartment out. He rents (does not buy) in the new city.

• March 2020: James moves out. The 6-year clock starts.
• February 2026: James sells the apartment for $720,000 (within 6 years of moving out).
• James has not nominated any other property as his main residence.

Result: James can choose to treat the apartment as his main residence for the entire period under the 6-year absence rule. The $170,000 capital gain may be fully exempt from CGT. If James were treated as a standard investor without the rule, and assuming a $95,000 salary, the estimated CGT (with 50% discount) would be approximately $30,000.

The 6-year rule saved James approximately $30,000 in tax on this sale.

How to reduce capital gains tax on Australian investment property

There is no legal way to eliminate CGT entirely on a standard investment property sale, but several strategies can significantly reduce the taxable amount. These are the most commonly used approaches under current ATO rules.

1. Hold for at least 12 months to qualify for the 50% discount. Australian resident individuals who hold a property for more than 12 months before selling may reduce the capital gain by 50% . The holding period is measured from contract to contract (not settlement).

2. Use the 6-year absence rule if the property was your main residence. If you lived in the property before renting it out, you may be able to treat it as your main residence for CGT purposes for up to 6 years after moving out. A sale within this window may be fully exempt. See the CGT 6-year absence rule guide for conditions and worked examples.

3. Time the sale to a low-income year. Because the capital gain is added to your other taxable income, selling in a year with lower income — such as during a career break, parental leave, or after retirement — means the gain is taxed at a lower marginal rate. The difference between selling in a high-income year versus a low-income year can be $10,000 or more.

4. Maximise your cost base. Every dollar added to your cost base reduces the taxable capital gain dollar for dollar. Keep records of all purchase costs (stamp duty, conveyancing), capital improvements (renovations, extensions), and selling costs (agent commission, legal fees, marketing).

5. Offset the gain with capital losses. If you have capital losses from other assets (shares, other property sold at a loss), these can offset your property capital gain. Unused capital losses from prior years can also be applied. Capital losses cannot offset salary or wage income — only capital gains.

6. Sell after 30 June if income is already high this year. If the current financial year already has high income, delaying settlement to after 1 July pushes the capital gain into the next financial year, where it may be taxed at a lower rate.

Disclaimer: The strategies above are general information only. Tax rules are complex and depend on your personal circumstances, residency status, and the specific history of your property. Consider speaking with a registered tax agent or accountant before making decisions based on CGT timing.

When should you sell to minimise CGT?

Timing the sale strategically can reduce your CGT bill significantly. The most impactful factors are:

• Sell after 12 months of ownership to qualify for the 50% discount. Missing the discount by a few weeks can double the taxable gain.
• Sell in a low-income year. If you take a career break, retire, or have a year with lower income, the gain is taxed at a lower marginal rate. This alone can save thousands.
• Sell after 30 June if the current financial year already has high income, pushing the gain into the next year.
• Consider the 6-year rule window. If you are approaching the 6-year mark on a former main residence, selling before the deadline could mean the difference between a fully exempt sale and a partly taxable one.

The premium investment property spreadsheet includes hold-vs-sell modelling that projects after-tax outcomes at different sale years, factoring in the 50% discount, income, and ongoing holding costs.

Common CGT mistakes

1. Forgetting selling costs in the cost base. Agent commissions, legal fees, and marketing costs at sale all reduce your capital gain. These costs are part of the cost base and should be included.
2. Not adjusting for Div 43 deductions. Every dollar of capital works deductions claimed reduces the cost base. If you claimed $50,000 in Div 43 over the holding period and forgot to account for it, the actual gain at sale is $50,000 higher than you expected.
3. Losing records. Without purchase receipts, improvement invoices, and depreciation schedules, it may be difficult to substantiate the full cost base. Keep records for at least 5 years after the CGT event.
4. Not considering the 6-year rule. Former main residences may qualify for a full or partial exemption. The rule is an election that must be made in the tax return for the year of sale.
5. Selling before the 12-month mark. The 50% discount requires holding the asset for at least 12 months. On a $200,000 gain at a 30% marginal rate, the discount reduces the tax by approximately $30,000.
6. Assuming negative gearing deductions reduce the cost base. Interest, insurance, and management fee deductions are income deductions, not cost base adjustments. Only Div 43 reduces the cost base.

How can you estimate your CGT?

The capital gains tax calculator estimates the cost base, capital gain, and additional tax for a property sale scenario. Enter purchase price, selling price, holding period, and expenses for an estimate using current ATO rates and brackets. The calculator includes a holding period comparison that projects the after-tax outcome at different sale years.

The premium spreadsheet connects CGT with negative gearing, depreciation, land tax, and multi-year cash flow, including hold-vs-sell analysis.

Disclaimer

This guide is general information only and is not tax advice, financial advice, or a recommendation to buy, sell, or hold any investment property. CGT rules are detailed and depend on your personal circumstances, including your residency status, entity structure, and other tax obligations. Tax rules can change. Consider speaking with a registered tax agent or accountant for advice specific to your situation.