Capital Gains Tax on Investment Property in Australia (2026 Guide)

How CGT on property actually works: cost base, the 50% discount, a fully worked 10-year example, the six-year rule, and five legal ways to cut the bill. Plus the 15% clearance certificate trap.

2 November 202610 min readPropPulse

Capital gains tax (CGT) is the bill most property investors think about least and pay most. It isn't a separate tax: your capital gain is added to your taxable income in the year you sell, and taxed at your marginal rate. Hold for more than 12 months and you only add half the gain. Get the cost base right and the gain shrinks further.

How CGT on property works

The formula is simple:

Capital gain = capital proceeds − cost base

Taxable gain = capital gain × 50% (if held 12+ months, individual or trust)

Tax = taxable gain taxed at your marginal rate, on top of your other income

The CGT event happens on the contract date, not settlement. A contract signed on 28 June falls in the earlier financial year even if it settles in August. That single detail is one of the most useful timing levers you have.

What goes into your cost base

A bigger cost base means a smaller gain. The ATO splits the cost base into five elements. In practice, for property, that means:

The purchase price
Stamp duty on the purchase
Conveyancing and legal fees on both purchase and sale
Buyer's agent fees, building and pest inspections
Agent commission and marketing costs on sale
Capital improvements: extensions, new kitchens, structural work
Holding costs you could not claim as a deduction, such as interest, rates and insurance on vacant land or during a period you lived in it (for property bought after 20 August 1991)

The catch: any Division 43 capital works deductions (building depreciation) you claimed while renting it out reduce your cost base. You got the deduction at your marginal rate along the way, and pay some of it back at the discounted CGT rate on sale. It is still usually a good trade. See our depreciation guide.

Worked example: a 10-year hold

You bought an investment house in 2016 for $600,000, paying $30,000 in stamp duty and legal fees. You claimed $25,000 in capital works deductions over the decade. In 2026 you sell for $950,000, paying $20,000 in agent fees and legal costs. Your other taxable income is $100,000.

Cost base

$625,000

$600k + $30k + $20k − $25k

Capital gain

$325,000

After 50% discount

$162,500

added to income

Your taxable income for the year jumps from $100,000 to $262,500. At 2026–27 resident tax rates, that extra $162,500 attracts about $63,500 in income tax plus $3,250 in Medicare levy.

CGT payable

~$66,700

Effective rate on gain

~20.5%

Net profit after CGT

~$258,300

Notice that most of the taxable gain is taxed at 37% and 45%. That is the real cost of selling in a high-income year.

Legal ways to reduce CGT

1. Hold for at least 12 months

Sell at 11 months and you pay tax on the full gain. Wait a few more weeks and you halve it. The 12 months run from contract date to contract date.

2. Sell in a low-income year

Because the gain is taxed at your marginal rate, selling in a year when your other income is low (parental leave, career break, the year after retirement) can save tens of thousands. In the example above, if other income were $30,000 instead of $100,000, the tax on the same gain would drop by almost $13,000.

3. Make a concessional super contribution

Concessional (pre-tax) contributions to super are deductible up to the annual cap, and unused cap amounts from the previous five years can be carried forward if your super balance is under $500,000. A large deductible contribution in the sale year pulls income out of the 37% and 45% brackets and into super's 15% rate.

4. Use the six-year rule on a former home

If the property was your main residence and you move out and rent it, you can keep treating it as your main residence for up to six years. Sell within that window and the gain can be fully exempt, as long as you don't claim another property as your main residence for the same period.

5. Offset against capital losses

Capital losses from shares, crypto or another property can be offset against the gain before the 50% discount is applied. Unused capital losses carry forward indefinitely.

The main residence exemption

Your home is generally exempt from CGT. If it was your home for only part of the time you owned it, or you rented part of it out, you get a partial exemption based on the proportion of days it was your main residence. If you first rented it out after 20 August 1996, the cost base resets to market value on the day it was first rented, which often works in your favour.

Foreign residents and the clearance certificate

Foreign residents lose the 50% discount for gains accrued after 8 May 2012, and generally can't claim the main residence exemption.
Since 1 January 2025, the buyer must withhold 15% of the price on every property sale unless the seller gives them an ATO clearance certificate. Australian residents should apply for one as soon as they decide to sell, because the ATO can take weeks to issue it.

CGT rules, including the 50% discount, have been the subject of ongoing policy debate. Figures above use 2026–27 resident tax rates. Always confirm current rules with the ATO or a registered tax agent before you sign a sale contract. General information only, not tax advice.

Plan the exit before the entry

The best CGT outcome starts with buying in a postcode with strong long-run growth fundamentals. PropPulse reports include a 5-year capital growth projection and total return estimate for every Australian postcode. Read how we think about growth versus yield, pair this with our negative gearing guide, or get a free report.