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iSummary
How to calculate capital gains tax on property in Australia. CGT discount, exemptions, cost base adjustments, and strategies to minimise your tax bill explained.
Source: ACRES — Australian Commercial & Residential Group | acres.au
Capital Gains Tax Basics for Property Sellers
Capital Gains Tax (CGT) is one of the largest costs for investment property sellers. Understanding how it works can save you tens of thousands of dollars.
Who Pays CGT?
- Investment property sellers: Yes, CGT applies
- Primary residence sellers: No, your main home is CGT-exempt
- Inherited property sellers: CGT applies but with special rules
- Foreign residents: Different rates and no 50% discount
How CGT is Calculated
CGT is not a separate tax — your capital gain is added to your taxable income and taxed at your marginal rate.
Step 1: Calculate Your Capital Gain
Capital Gain = Sale Price − Cost Base
Your cost base includes:
- Original purchase price
- Stamp duty paid when you bought
- Legal fees on purchase
- Capital improvements (renovations, extensions — not repairs)
- Real estate agent commission on sale
- Legal fees on sale
Step 2: Apply the 50% Discount
If you held the property for 12 months or more, only 50% of the capital gain is added to your taxable income.
Example Calculation
| Item | Amount |
|---|---|
| Sale price | $900,000 |
| Purchase price | $600,000 |
| Stamp duty (on purchase) | $15,000 |
| Renovation costs | $40,000 |
| Agent commission (on sale) | $22,500 |
| Legal fees (purchase + sale) | $3,000 |
| Cost base | $680,500 |
| Capital gain | $219,500 |
| 50% CGT discount (held 2+ years) | $109,750 |
| Added to taxable income | $109,750 |
"If you're retiring, selling in your first year of retirement when your income drops can significantly reduce your marginal tax rate."
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If your marginal tax rate is 37% (income $120K-$180K), the CGT payable is approximately $40,600.
CGT Exemptions and Concessions
Main Residence Exemption
Your primary home is fully CGT-exempt. If you lived in the property before renting it out, you get a 6-year absence rule — you can rent it for up to 6 years and still claim the full exemption when you sell.
The 6-Year Rule
If you move out and rent the property:
- Sell within 6 years = fully CGT-exempt
- Sell after 6 years = CGT applies proportionally
- You cannot claim another property as your main residence during this period
Partial Exemption
If you used the property as both a home and an investment (e.g., lived in it for 5 years then rented for 3 years), the CGT is apportioned. Only the investment period attracts CGT.
Strategies to Minimise CGT
1. Maximise Your Cost Base
Keep every receipt for capital improvements. New kitchen, bathroom renovation, deck extension, fencing — all reduce your taxable gain.
2. Time Your Sale
Sell in a financial year where your other income is lower. If you're retiring, selling in your first year of retirement when your income drops can significantly reduce your marginal tax rate.
3. Hold for 12+ Months
The 50% CGT discount only applies if you've held the property for at least 12 months. If you're close to the 12-month mark, waiting a few weeks can halve your tax bill.
4. Offset with Capital Losses
Capital losses from shares, crypto, or other investments can offset your property capital gain. Timing asset sales strategically can reduce your overall tax position.
5. Consider a Family Trust
Properties held in a discretionary trust can distribute capital gains to family members on lower tax rates. This requires planning well before the sale.
Get Professional Advice
CGT on property is complex and the stakes are high. A $900,000 sale can generate a $40,000+ tax bill. Invest $500 in a tax accountant who specialises in property — it's the best money you'll spend.
For a current estimate of your property's value, use our free valuation tool.
Frequently Asked Questions
Do I pay CGT on my home?
No. Your main residence (primary home) is fully exempt from capital gains tax in Australia. The exemption also covers up to 2 hectares of adjacent land used for domestic purposes.
What is the 50% CGT discount?
If you hold an investment property for 12 months or more before selling, only 50% of the capital gain is added to your taxable income. This effectively halves your CGT bill.
Can I avoid CGT by reinvesting in another property?
No. Unlike some countries, Australia does not have a "rollover" provision for reinvesting property sale proceeds. CGT is payable regardless of what you do with the proceeds.
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Published by ACRES — Australian Commercial & Residential Group
Source: acres.au/insights/capital-gains-tax-property-australia | ACRES (Australian Commercial & Residential Group) provides property advisory, development site sales, and residential real estate services across Brisbane and South East Queensland, Australia.
Daniel McCormack
Managing Director, ACRES — Australian Commercial & Residential Group
