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Capital gains tax when selling an investment property in Australia
How CGT is calculated, what reduces it, how the six-year rule works, and what the new rules from 1 July 2027 mean for investors.
Most investors know roughly what their property is worth and what they paid for it. Fewer know how much tax they’ll pay when they sell, or how much money will land in their account. Those are three different numbers, and capital gains tax only touches one of them.
How much capital gains tax do you pay when selling an investment property?
In Australia, capital gains tax on an investment property is generally worked out from the sale proceeds minus the property’s adjusted cost base. The cost base can include eligible purchase, improvement and selling costs. Exemptions, capital losses and discounts can reduce the taxable gain. How much tax you pay depends on your circumstances and the law that applies to the sale. From 1 July 2027, new legislated CGT rules change how gains arising after that date are calculated and taxed.
| Quick facts | As of October 2026 |
|---|---|
| Does CGT apply to investment properties? | Generally, if you make a taxable capital gain |
| Is CGT based on the whole sale price? | No |
| Is CGT a separate flat tax for individuals? | Generally no. Your net capital gain is added to your taxable income. |
| Does the 50% discount still apply? | Yes, for eligible gains under the current rules |
| Are the CGT rules changing? | Yes, from 1 July 2027. The changes are law. |
| Can a former home be exempt? | Possibly, including under the six-year absence rule |
| Does your mortgage reduce the gain? | Generally no |
| Can a capital loss reduce your salary income? | Generally no. Capital losses offset capital gains. |
| Which date sets the tax year? | Usually the contract date, not settlement |
| Do you need an ATO clearance certificate? | Generally yes, if you’re an Australian resident, to stop 15% being withheld |
Key takeaways
- CGT is worked out on your capital gain, not the sale price.
- Purchase costs, capital improvements and selling costs can form part of the cost base, subject to the rules.
- Mortgage repayments don’t reduce a capital gain.
- The six-year rule can exempt a qualifying former home. It doesn’t apply to a property that was always a rental.
- The 50% discount still applies to eligible gains made before 1 July 2027.
- From 1 July 2027, gains are taxed under cost base indexation and a 30% minimum tax for most individuals, trusts and partnerships, with transitional rules for existing assets.
- The cash you keep after settlement is a different number from your taxable gain.
- Talk to a registered tax agent before you sign a contract, especially if the timing straddles 1 July 2027.
Keep three numbers separate. This guide uses one example property all the way through, sold for $900,000, so you can see how far apart they end up.
Sale price: $900,000What the buyer pays for the property
Cash proceeds: $380,000What’s left after paying out a $500,000 loan and $20,000 in selling costs, before tax
Net capital gain: $112,500The amount added to taxable income, under the assumptions in the worked example below
Illustrative figures only.
Ben’s insightWhen people think about selling an investment property, they usually start with how much the property has increased in value. But that’s only part of the picture. What matters is understanding the costs, tax implications and how much money you’ll actually have available after the sale.
What is capital gains tax on an investment property?
Capital gains tax is how the tax system treats the gain you make when you sell an asset, such as an investment property. For Australian individuals, it isn’t a separate tax with its own rate. Your net capital gain is added to your other income for the year and taxed at your marginal rate, under the current rules. From 1 July 2027, gains arising after that date are subject to new rules, explained below.
Is CGT based on the sale price or the profit?
The profit, and even then not the headline profit. Buy a property for $600,000 and sell it for $900,000 and the price has gone up $300,000. Your taxable gain isn’t necessarily $300,000. Purchase costs, capital improvements, selling costs, past tax deductions, exemptions and discounts all move the number.
When does capital gains tax apply?
CGT generally applies when you sell a residential investment property, a rental, a former home that doesn’t qualify for a full main residence exemption, or a property held in a trust, company or partnership. It’s different if your property activity looks like a business, for example buying, renovating and selling for profit or subdividing and developing. Then the profit may be taxed as ordinary income rather than a capital gain, and GST can come into it.
How do you calculate capital gains tax on an investment property?
Five steps. Do them in this order, because the order changes the answer.
Work out the sale proceeds
Usually the price the buyer pays. If the sale includes separate assets, such as furniture in a furnished rental, those may need to be allocated separately.
Calculate the adjusted cost base
Capital gain = sale proceeds − adjusted cost base. The cost base starts with the purchase price, then adds eligible costs such as stamp duty, purchase legal fees, capital improvements and selling costs. It’s then reduced by certain amounts, such as capital works deductions you’ve claimed.
Apply capital losses
Subtract any capital losses from the same year, then any net capital losses carried forward from earlier years. Losses come off before any discount.
Apply any discount or exemption
Under the current rules, an eligible individual who held the property for at least 12 months can reduce the remaining gain by 50%. A partial main residence exemption may also apply. Gains after 1 July 2027 follow the new rules.
Work out the tax
The result is your net capital gain. It’s added to your other taxable income, and tax is worked out on the total at your marginal rate, plus the Medicare levy where it applies.
The discount is not a tax saving of 50%The 50% discount halves the gain that goes into your tax calculation. It doesn’t cut your tax bill by a fixed dollar amount. What you save depends on your marginal rate.
What expenses can reduce capital gains tax when selling a property?
| Expense | General CGT treatment |
|---|---|
| Original purchase price | Usually part of the cost base |
| Stamp duty on purchase | Generally an eligible acquisition cost |
| Purchase conveyancing fees | Generally eligible |
| Selling agent commission | Generally an eligible selling cost |
| Fixed-fee selling service | Selling expenses may be eligible |
| Sale conveyancing fees | Generally eligible |
| Advertising for the sale | Generally an eligible selling cost |
| Capital improvements | May be included, subject to adjustments |
| Ordinary repairs | Usually deductible against rent instead, so not added to the cost base |
| Mortgage repayments | Not part of the cost base |
| Loan interest | Excluded where it was deductible, or could have been |
| Capital works and depreciation claims | Can reduce the cost base or need separate calculations |
What’s the difference between repairs and improvements?
Replacing a broken tap is a repair. You usually claim it against rental income in the year you pay for it. A new kitchen is a capital improvement. Some of it may be claimed over time as capital works deductions, and the rest may sit in the cost base. You can’t count the same dollar twice. Expenses you’ve already claimed as a deduction generally can’t also go into the cost base. Strata levies, insurance and routine maintenance don’t belong there either.
Why depreciation matters when you sell
Many investors forget this. If you’ve claimed capital works deductions (the building write-off) for a property acquired after 13 May 1997, those deductions generally reduce your cost base when you sell. That increases your gain. Depreciating assets such as appliances, carpets and blinds are dealt with under separate rules, and selling them with the property can trigger its own calculation. Dig out your depreciation schedule before you estimate your tax.
Capital gains tax calculation: worked example
An individual bought an investment property, held it for more than 12 months and sold it before 1 July 2027.
| Illustrative pre-July 2027 calculation | Amount |
|---|---|
| Sale price | $900,000 |
| Original purchase price | $600,000 |
| Eligible purchase costs | $25,000 |
| Eligible capital improvements | $40,000 |
| Selling costs | $20,000 |
| Less capital works deductions claimed | −$10,000 |
| Adjusted cost base | $675,000 |
| Capital gain before discount | $225,000 |
| 50% CGT discount | −$112,500 |
| Net capital gain added to taxable income | $112,500 |
Hypothetical example. Assumes full discount eligibility, no capital losses, no other concessions and no separate depreciating-asset adjustments. The tax payable depends on the owner’s circumstances.
The investor does not pay $112,500 in tax. That $112,500 is added to their other income for the year, and tax is worked out on the total. Someone on a lower income pays less tax on it than someone already in the top bracket.
This example uses the rules that apply now. Don’t use it for a gain that runs past 1 July 2027.
Does the 50% CGT discount apply to investment properties?
What is the 12-month rule?
Under the current rules, an eligible Australian-resident individual who has owned a property for at least 12 months can reduce the capital gain by 50%. The 12 months generally runs from contract date to contract date. Sell within 12 months and the whole gain goes into your taxable income.
Who can claim the discount?
- Australian-resident individuals: yes, if they meet the 12-month rule
- Trusts: the discount can flow through to eligible beneficiaries
- Foreign residents: restricted. Periods of foreign residency after 8 May 2012 generally don’t qualify.
- Companies: no. Companies don’t get the 50% discount.
What happens from 1 July 2027?
The discount is replaced for gains arising after that date, with an exception for new builds. The next section explains how it works.
What are the new capital gains tax laws for investment properties?
These changes are law. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 passed Parliament on 25 June 2026 and received Royal Assent on 26 June 2026. The main CGT changes apply to gains arising from 1 July 2027. They cover individuals, partnerships and trusts that hold an asset for at least 12 months.
The 50% discount is replaced by indexation
For gains arising from 1 July 2027, the 50% discount is replaced by cost base indexation. Your cost base rises in line with the consumer price index (CPI), similar to the system Australia used between 1985 and 1999. The aim is to tax only the real gain above inflation. The ATO has said it will provide guidance and tools for the calculation.
The new 30% minimum tax
A minimum tax rate of 30% applies to real capital gains arising from 1 July 2027. Recipients of certain government payments, such as the Age Pension and JobSeeker, are exempt. If your marginal rate is below 30%, the tax on that real gain can be lifted to the minimum.
Two things it doesn’t mean. It is not a 30% tax on your sale price. And it isn’t a flat rate that every seller pays the same way. It applies to the real gain arising after 1 July 2027, after indexation, and your tax agent will work out how it applies to you.
What happens to gains made before 1 July 2027?
Gains are split at 1 July 2027. If you own a property before that date and sell after it, the gain up to 1 July 2027 is taxed under the current rules, including the 50% discount if you’re eligible. The gain after that date falls under the new rules.
To split the gain, you’ll need the property’s value at 1 July 2027. You choose how to work it out in the tax return for the year you sell. You can either get a valuation as at 1 July 2027, or use a set apportionment formula that estimates the value from the property’s growth rate over the time you’ve owned it.
If you plan to hold past mid-2027, think about getting a valuation as at 1 July 2027. It may be the better of the two methods for your property, and it’s much harder to get an accurate one years later. See our Q&A with a valuer for what a formal valuation involves.
What if you already own an investment property?
Owning a property before the law changed doesn’t exempt it from the new CGT rules. Its gain from 1 July 2027 onward is still taxed under the new system. Negative gearing is different. Existing properties are protected from the negative gearing changes. The two get mixed up all the time.
Are new residential properties treated differently?
Yes. Investors in new builds can choose either the 50% discount or indexation with the minimum tax when they sell. Eligibility depends on the legislation’s definition of a new residential property, so check that your property qualifies before relying on it.
What about the negative gearing changes?
Negative gearing is a separate issue from CGT. From the 2027–28 income year, losses on established residential properties bought after 7:30pm AEST on 12 May 2026 can only be deducted against residential property income, including capital gains. They can’t be deducted against wages. Unused losses can be carried forward. Properties held before that time keep the current treatment until they’re sold, and new builds can still be negatively geared.
| Issue | Rules now (October 2026) | From 1 July 2027 |
|---|---|---|
| CGT discount | Generally 50% for eligible owners | Replaced by CPI indexation for gains after 1 July 2027 |
| Minimum tax on gains | None | 30% minimum on real gains, with exemptions for some income support recipients |
| Gains before 1 July 2027 | Current rules | Still taxed under the current rules |
| New builds | Current rules | Choice of 50% discount or indexation with the minimum tax |
| Negative gearing | Losses deductible against other income | Limited for established homes bought after 12 May 2026; existing holdings protected |
| Main residence exemption | Applies, subject to eligibility | Not abolished by these reforms |
Simplified summary, current as of October 2026. Check the legislation and the ATO’s latest guidance before you rely on it, particularly for a gain that spans 1 July 2027.
Ben’s insightOne of the most important things you can do before selling an investment property is speak to your accountant. The timing of the contract and the property’s ownership history can have a significant effect on the tax outcome.
Can you avoid capital gains tax using the six-year rule?
What is the six-year rule?
If a property was genuinely your home and you move out and rent it, you can choose to keep treating it as your main residence for up to six years. If you sell within that time, the gain may be fully exempt. While you make that choice, you generally can’t treat another property as your main residence, apart from a short overlap when you move house. Each separate period of absence gets its own six-year limit, so moving back in resets the clock.
Example: you lived in the property before renting it out
Hypothetical. Eligibility depends on other main residence choices, residency and any earlier income-producing use.
What if you rent it out for more than six years?
You lose the full exemption, but you may get a partial one. The taxable part of the gain is usually worked out by the number of days the property wasn’t your main residence. The market value rule below can also apply.
What if the property was always an investment?
The six-year rule doesn’t help. Owning a rental for six years doesn’t create an exemption. The rule only protects a property that was your home first.
Can you have two main residences?
Generally no. You can only treat one property as your main residence at a time. The exception is an overlap of up to six months when you buy a new home before selling the old one, if conditions are met. Spouses also have to choose a single main residence between them, or split the exemption.
What if you lived in the investment property before renting it out?
The market value rule
If your home would have been fully exempt had you sold it just before you first rented it out, you may be treated as having bought it at its market value on the day it first earned income. You’d only pay tax on the gain from that date, which can change the result a lot. Conditions apply, including when the property was bought and that it was your main residence right up to that point. The rule applies when you can’t claim a full exemption, for example because you rented it for more than six years.
Get a valuation when you start renting
If this rule could apply, you’ll need the market value on the day the property was first rented. A valuation done at the time is far stronger than one pieced together years later. Keep it with your tax records. Our guide to valuing your home explains your options.
What if you move into a property that was rented?
Moving into a former rental doesn’t wipe out the tax on the years it was rented. You may get a partial main residence exemption for the time you lived there, but the rental years generally stay taxable.
What happens if you sell an investment property at a loss?
These four things sound alike but aren’t the same:
- A capital loss: the sale proceeds are less than the cost base (with some adjustments for losses)
- Negative rental cash flow: rent didn’t cover the loan and expenses each year
- Selling for less than you owe: the sale doesn’t clear the mortgage
- A poor overall return: the investment made less than you hoped, or lost money after everything
You can make a loss in one sense and a capital gain in another. A property can sell for more than its cost base while you still owe more than it’s worth.
Can you claim a capital loss on your tax return?
A capital loss can be offset against capital gains, not against your salary or other ordinary income. If you have no gains to offset that year, you can generally carry the net capital loss forward indefinitely and use it against future gains.
Can capital losses offset gains from other investments?
Generally yes. A capital loss on a property can offset a gain on shares or another property, subject to the rules for particular asset types. Remember the order: losses come off before any discount.
Does your mortgage affect capital gains tax?
Does paying off the mortgage reduce CGT?
Generally no. Your loan decides how much debt is paid out at settlement. It doesn’t change the property’s cost base or your capital gain.
What if you have a large mortgage?
Back to the example. The property sells for $900,000. The loan payout is $500,000 and selling costs are $20,000. That leaves roughly $380,000 in cash before tax. The net capital gain is still $112,500, worked out from the cost base, not the loan. You can’t calculate CGT from the mortgage figure, and you shouldn’t spend the $380,000 before you’ve set aside the tax. To see where you stand, read how much equity do I have in my home.
What if you refinance before selling?
Refinancing doesn’t change the property’s cost base. It can change how much interest you can deduct against rent, so check with your accountant before you redraw or restructure loans.
When do you pay capital gains tax?
Contract date or settlement date?
For a normal property sale, the CGT event happens when you sign the contract, not at settlement. Sign in June and settle in August, and the gain belongs to the financial year ending in June. You report it in that year’s tax return once settlement has happened. A contract date near 30 June changes which year you pay tax in. A contract date near 1 July 2027 can also change which rules apply.
Do you pay CGT at settlement?
No. You don’t hand over a CGT payment at settlement. The gain goes into your tax return, and the tax is due when your assessment is issued, or through PAYG instalments if you pay those.
What is the 15% foreign resident withholding rule?
From 1 January 2025, a buyer must withhold 15% of the purchase price and pay it to the ATO for any Australian property sale, whatever the price, unless the seller gives them a clearance certificate. This applies to Australian residents too. If you don’t provide the certificate in time, 15% of your price goes to the ATO at settlement. Clearance certificates are free and last 12 months, so apply early. Withholding isn’t a tax on every sale. It’s a collection mechanism, with ways to get an exemption or a reduced rate.
Does capital gains tax change if the property is owned jointly or through a trust?
| Ownership | What to know |
|---|---|
| Individual | The gain is taxed under your own circumstances |
| Joint owners | Each owner usually reports their share, based on their ownership interest |
| Trust | The gain can be distributed to beneficiaries, with discount rules flowing through |
| Company | No 50% discount, and taxed at the company rate. The 2027 indexation changes don’t apply to companies. |
Foreign tax residency changes things a lot. Foreign residents generally can’t claim the main residence exemption and have restricted access to the discount. Inherited properties have their own cost base and main residence rules, and we’ll cover them in a separate guide.
Is GST payable when selling an investment property?
Usually not. Selling an existing residential property is generally input taxed, which means no GST on the sale. It’s different for new residential premises, a substantial renovation, or a property you developed or subdivided as part of a business or profit-making activity. If you’ve done major work on the property, check the GST position with your accountant before you list.
How to prepare for CGT before selling your investment property
Have the tax conversation before you sign a contract. By settlement, the date and the price are locked in.
- Confirm the purchase and ownership dates
- Find your purchase contract and settlement statement
- Gather stamp duty and purchase legal fee records
- Collect records of renovations and capital improvements
- Get your capital works and depreciation schedules
- Confirm whether the property was ever your main residence
- List the periods it was rented and lived in
- Check for capital losses you can use
- Estimate your selling costs
- Get a current loan payout figure
- Check which tax rules apply to your likely contract date
- Get advice on the before and after July 2027 split, if relevant
- Apply for an ATO clearance certificate
- Go through the estimated CGT with a registered tax agent
Can selling for a fixed fee reduce your taxable gain?
Lower selling costs and a lower taxable gain are two different things. Selling costs such as commission and advertising generally form part of your cost base. So when you pay less to sell, your taxable gain goes up slightly. You still come out ahead, because only part of each dollar saved goes to tax.
| Selling method, on a $1,000,000 sale | Example fee |
|---|---|
| Traditional commission at 2.5% | $25,000 |
| Unreserved Plus fixed fee | $6,900 |
| Difference, before tax and other costs | $18,100 |
Illustrative. Assumes the same sale price either way. Commission shown before GST.
Under the current rules, the after-tax maths runs roughly like this. Say you qualify for the 50% discount and you’re on the 37% rate plus the 2% Medicare levy. The $18,100 you don’t spend raises your net capital gain by $9,050, which costs about $3,530 in extra tax. You keep roughly $14,570 more. Your figures will depend on your rate, your eligibility and the rules that apply to your sale.
Unreserved Plus is a flat $6,900: $2,000 up front and $4,900 when the property sells. A licensed campaign manager handles the marketing, buyer enquiries, follow-up and negotiation, and you open the door for inspections. See what Unreserved Plus includes.
Ben’s insightThe selling fee is one of the costs an investor can control. Paying less to sell doesn’t remove your tax obligations, but it can improve the amount you retain from the transaction.
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How much capital gains tax do I pay when selling an investment property?
It depends on your capital gain, your other income, how long you’ve owned the property and which rules apply. Your net capital gain is added to your taxable income and taxed at your marginal rate, with new rules for gains arising from 1 July 2027.
How is CGT calculated on an investment property in Australia?
Take the sale proceeds and subtract the adjusted cost base to get the capital gain. Subtract any capital losses, then apply any discount or exemption. The result is your net capital gain, which is added to your taxable income.
Is CGT calculated on the selling price or the profit?
On the capital gain, which is the sale proceeds minus your adjusted cost base. It is never calculated on the whole selling price.
Can I claim the 50% CGT discount when selling a rental property?
Yes, for gains made before 1 July 2027, if you’re an eligible Australian-resident individual or trust beneficiary and you held the property for at least 12 months. Companies can’t claim it.
What CGT rules change on 1 July 2027?
For individuals, partnerships and trusts, the 50% discount is replaced by CPI indexation of the cost base for gains arising from that date, and a 30% minimum tax applies to real capital gains. Gains before that date keep the current treatment.
Does the new 30% CGT minimum apply to the whole sale price?
No. It applies to real capital gains arising from 1 July 2027, after indexation. It is not a tax on the sale price, and some income support recipients are exempt.
Do the 2027 CGT changes affect investment properties I already own?
Yes, for the part of the gain arising after 1 July 2027. The gain up to that date is taxed under the current rules. The negative gearing protection for existing properties is a separate rule.
What expenses reduce CGT when selling an investment property?
Eligible costs that form part of the cost base, such as stamp duty, purchase and sale legal fees, capital improvements, and selling costs like commission and advertising. Costs you’ve already claimed as deductions generally can’t be counted again.
Does renovation spending reduce capital gains tax?
Capital improvements can increase your cost base and reduce your gain. Any capital works deductions you’ve claimed on them generally reduce the cost base again. Ordinary repairs are usually deducted against rent instead.
Does depreciation increase CGT when I sell?
It can. Capital works deductions claimed for properties acquired after 13 May 1997 generally reduce the cost base, which increases the gain. Depreciating assets have their own separate rules.
Can I avoid CGT under the six-year rule?
Only if the property was your main residence before you rented it out. You can then treat it as your main residence for up to six years of absence while it earns income, as long as you don’t treat another property as your main residence.
What happens if I lived in the property before renting it out?
The six-year rule may apply. If it doesn’t fully cover you, the market value rule may treat the property as bought at its market value on the day it was first rented, so only the later gain is taxed.
Does moving into my rental property remove CGT?
No. You may get a partial main residence exemption for the time you live there, but the years it was rented generally remain taxable.
Can I use a capital loss to reduce tax?
A capital loss can offset capital gains in the same year or be carried forward to future years. It can’t be used against salary or other ordinary income.
Does paying off my mortgage reduce CGT?
No. Your mortgage affects how much cash you receive at settlement, not your capital gain.
When is CGT payable after selling property?
You report the gain in your tax return for the financial year the contract was signed, and pay the tax when your assessment is issued. No CGT payment is made at settlement, although 15% foreign resident withholding applies unless you provide a clearance certificate.
Is CGT based on the contract date or settlement date?
For a normal property sale, the contract date. That decides which financial year the gain belongs to.
Do I need an ATO clearance certificate?
Generally yes, if you’re an Australian resident. Without one, the buyer must withhold 15% of the price at settlement. Certificates are free from the ATO and last 12 months.
Does CGT apply if my investment property is jointly owned?
Yes. Each owner generally reports their share of the gain, based on their ownership interest, under their own tax circumstances.
Is GST payable when selling an investment property?
Usually not for an existing residential property. GST can apply to new residential premises, substantially renovated properties or property developed or subdivided as a business or profit-making activity.
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General tax information only. This article explains capital gains tax on residential investment property in Australia. It is not personal tax, financial, investment, accounting or legal advice. Your tax depends on your residency, ownership structure, purchase dates, rental history, deductions, exemptions and the law that applies when you sign the contract. Before you sell, time a sale around the 1 July 2027 changes or estimate your CGT, get advice from a registered tax agent or qualified accountant. Information current as of October 2026, based on ATO guidance, the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 and Treasury material.
