CGT on Investment Property

Capital gains tax (CGT) applies when you sell an investment property for more than its cost base, and getting the calculation right can make a significant difference to how much tax you pay. Our registered tax agents help property investors calculate CGT correctly, apply eligible discounts and exemptions, and plan ahead of a sale so there are no surprises at tax time.

How CGT on an Investment Property Is Calculated

CGT is calculated on the capital gain – the difference between your property’s sale price and its cost base, which includes the original purchase price plus eligible costs like stamp duty, legal fees, and certain capital improvements. The resulting gain is added to your assessable income for the year and taxed at your marginal rate, unless a discount or exemption applies.

The 50% CGT Discount

If you’ve held the investment property for more than 12 months, you may be entitled to a 50% discount on the capital gain, effectively halving the amount added to your taxable income. Getting the ownership period and eligibility right is important, as the discount doesn’t automatically apply in every situation – for example, it’s not available to companies.

What Counts Toward Your Cost Base

Your cost base isn’t just the purchase price. It can include stamp duty, legal and conveyancing fees, loan establishment costs, and capital improvements made over the years – but not general repairs and maintenance, which are typically claimed as deductions in the year incurred instead. We review your full ownership history to make sure every eligible cost is included, reducing your taxable gain.

Main Residence Exemption and Partial Exemptions

If a property was your main residence for part of the ownership period before becoming an investment property (or vice versa), you may be entitled to a partial main residence exemption. This calculation can get complex, particularly with the six-year absence rule for a property that was once your home. We work through the specific timeline of your ownership and use to calculate any exemption correctly.

Depreciation and CGT

If you’ve claimed depreciation deductions on the property over the years, some of these may need to be added back when calculating your capital gain, depending on the type of deduction claimed. We reconcile your depreciation schedule against your CGT calculation to make sure this is handled correctly.

Planning Ahead of a Sale

The timing of a property sale can significantly affect your CGT position – selling in a lower-income year, timing the sale around the end of the financial year, or offsetting a gain against capital losses from other investments are all strategies worth discussing before you list the property, not after settlement.

Selling an Investment Property Held in a Trust or SMSF

CGT rules differ depending on the ownership structure – individual, company, trust, or self-managed super fund. Each has different discount eligibility and tax rate implications, so the structure holding the property matters as much as the property itself when it comes to planning for CGT.

Foreign Resident Withholding on Property Sales

If you’re a foreign resident selling Australian property, withholding tax rules apply at settlement, separate from your final CGT liability calculated in your tax return. We help make sure this is planned for correctly ahead of any sale.

Frequently Asked Questions

Do I have to pay CGT on every investment property sale?

Generally yes, unless a specific exemption applies (such as a main residence exemption for part of the ownership period), or the sale results in a capital loss rather than a gain.

How is the 50% CGT discount applied?

If you’ve owned the property for more than 12 months as an individual or trust, 50% of the capital gain is generally excluded from your assessable income before tax is calculated on the remainder.

Can I reduce my capital gain with costs from when I bought or improved the property?

Yes – stamp duty, legal fees, and eligible capital improvement costs can generally be added to your cost base, reducing your taxable capital gain.

What if the property was my home before I turned it into a rental?

You may be entitled to a partial main residence exemption for the period it was your home, calculated based on your specific ownership and occupancy timeline.

Can I offset a capital gain with losses from other investments?

Yes – capital losses from other investments (such as shares) can generally be used to offset a capital gain on an investment property sale in the same financial year, or carried forward to future years.

How much does CGT advice or calculation cost?

Cost depends on the complexity of your ownership history and any structuring involved. We agree a fixed fee upfront based on your specific situation.

CGT in Specific Situations

CGT rules apply a little differently depending on your circumstances – see our pages on CGT rollover relief on a divorce settlement, foreign resident investment property tax returns, and overseas investment property tax if any of these apply to you.