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Capital gains tax on property

You can get hit with capital gains tax on property when you sell an investment property for a profit. But your home is usually exempt from CGT.

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This article was fact-checked and reviewed by , an accredited buyer's agent, licensed real estate agent and the author of Positively Geared. Content has been updated for 2021.

What you need to know:

  • You pay capital gains tax when selling an asset at a profit. This includes property.
  • You are exempt from paying CGT on your home. Investors pay CGT when selling an investment property, but there's a 50% discount if you've owned the property for 12 months.
  • Use a CGT calculator to estimate your capital gains tax when selling a property.

What is capital gains tax (CGT)?

CGT is a tax you pay on the profits you make when you sell an asset. This includes property. CGT applies to assets that you purchased on or after 20 September 1985.

Any gain or profit made on the sale of a CGT asset is included in your assessable income in the financial year that you sell the asset. This means the profit is added to your taxable income. The following example will help illustrate this point:

  • You earn $80,000 in your job.
  • You sell an investment property and make a $100,000 profit after all deductions.
  • You add $100,000 to your taxable income for the year.
  • The ATO would then tax you as if you have earned $180,000.

When you're selling a home, any profit you make above the cost of acquiring and maintaining the home is considered a capital gain.

How much CGT will I have to pay?

You can use our CGT calculator to estimate your capital gains costs when selling a property or other asset. Please keep in mind that it's not possible to give an exact calculation of your costs using this calculator, but it can help you get a better understanding of how capital gains will affect your tax.

Finder survey: How many investment properties do Australians in different states have?

ResponseWAVICSAQLDNSW
24.13%1.65%2.15%2.3%1.53%
12.48%2.97%2.15%5.99%6.12%
31.65%0.66%0.46%0.61%
40.33%0.46%0.61%
50.33%0.31%
Source: Finder survey by Pure Profile of 1112 Australians, December 2023
Data for ACT, NT, TAS not shown due to insufficient sample size. Some other states may also be excluded for this reason.

How is capital gains tax calculated?

If you're selling an investment property, the CGT calculation is based on the sale price of a property minus your expenses. These expenses are called your cost base. The cost base is the total sum of the original purchase price plus any incidentals, including ownership and title costs, minus any government grants and depreciable items. Depreciable building items were not included in the cost base calculations prior to 1997.

  • Incidental costs. These include stamp duty, legal fees, agent fees and advertising and marketing fees.
  • Ownership costs. These include rates, land tax, maintenance and interest on your home loan. Note that you can only add rates, land tax, insurance and interest on borrowed money to your cost base if you acquired the property after 20 August 1991 or didn't use the property to produce an assessable income (e.g. vacant land or main residences).
  • Improvement costs. These include replacing kitchens, bathrooms or any other improvements you've made on the property.
  • Title costs. These include legal fees associated with organising and defending your title on the property.

Calculating capital gains tax is relatively simple:

  • Step 1: Calculate your cost base

Purchase price + all costs - FHOG (First Home Owner Grant) and claimed depreciation = cost base

  • Step 2: Subtract cost base from your property's sale price

Sale price - cost base = capital gain or loss

Once you've worked out the capital gain, the figure is then adjusted according to a number of variables, including the following:

  • Any percentage of time when you owned the property that it was rented out and not your main place of residence.
  • If you've held the property for longer than 12 months, you are eligible to receive a 50% discount.

There are 3 methods of calculating capital gains tax:

MethodDescriptionHow to calculate
Other method
This calculation method is for those who have held an asset for less than 12 months.
This is the most basic method of CGT calculations.Take the cost base away from the sale price.
Discount method
This method is for those holding assets for more than 12 months.
Those using this method are entitled to a 50% discount off of the CGT liability for individuals or a 33.3% discount off of the CGT liability for super fundsSubtract the cost base from capital proceeds and deduct capital losses. Then take your discounted percentage and reduce the amount by it.
Indexation method
If you bought the asset before 11:45am (ACT time) 21 September 1999 AND owned the property for more than 12 months.
You can increase the cost base by applying an indexation factor based on the Consumer Price Index (CPI) up to September 1999.For more information on this calculation method, visit the ATO website.

*Based on information from the ATO.

Once these factors are worked out, you'll be left with the amount of capital gains that will be included in your taxable income and taxed at your marginal rate. There are ways to avoid capital gains tax, though, whether fully or partially.

When does CGT apply to property and can I get a full exemption?

There are multiple scenarios where you can completely avoid CGT when selling your property. The most obvious exemption is if the property is your home (the main place of residence exemption).

Main place of residence

You can avoid paying CGT if you sell a dwelling that's considered your main place of residence. You can only ever have one main residence at any given time unless you're selling your main residence and buying another.

The ATO doesn't give an exact description of what constitutes a main residence, but gives the following points to consider:

  • You and your family live in the dwelling.
  • Your mail is delivered there.
  • You have your personal belongings there.
  • You're registered to vote at the property's address.
  • You have connected a phone, gas and electricity to the property.

If you've lived in your home for the whole time you've owned it, haven't rented it out either completely or to a lodger and the land is smaller than 2 hectares, you'll get a full exemption on CGT when you sell. This is helpful if you plan to live the renovator's life: selling your home, moving into another, renovating it and then selling the renovated property. And while you won't make a rental income if you go down this path, all profits made from the renovation are exempt from CGT.

Purchased property before 1985

Property is exempt from capital gains tax if you purchased it before 20 September 1985.

Temporary absence – the 6-year rule

If you have to move out of your home and choose to rent it out, you may be exempt from some CGT liability under the "Temporary Absence Rule".

What is the rule? If you move out of your home and rent it out, under the law, the property is still treated as your principal residence for a period of up to 6 years. If you sell the property within this time frame, you will be exempt from paying CGT if you profit from the sale. You are also exempt from paying capital gains on the income generated from the leasing of the property.

What's the catch? You will still need to pay CGT on the sale of one of your dwellings.

If you're moving out of your home and renting it out, you're going to need somewhere else to live. You will need to elect 1 of the 2 dwellings as your principal place of residence and a tax will be applied to the sale of your non-primary property.

SMSF investment

Buying a property through your SMSF is one way you can generate profits from residential real estate and avoid paying CGT. You use your super fund to purchase the home along with an SMSF property home loan to make up the total. You then pay off the loan through your super contributions.

If you sell the property once you've retired, you'll pay no capital gains on the property. Even if you sell the property while you're still accumulating your super, this will be taxed at a rate of only 15%. Holding onto the property for longer than a year will effectively drop this rate to 10%.

Buying a property with your SMSF comes with some risks, so you should never attempt it without first seeking professional advice.

Partial CGT property exemptions

While avoiding CGT liability altogether may not be possible if you haven't lived in the property before you rented it out, you can still apply for partial exemptions in some circumstances.

Making an investment property your main residence

If you changed your mind and decided to live in a property you purchased as an investment, you'll be partially exempt from capital gains tax. In this case, the CGT you'll owe will be worked out by comparing the number of days you lived in the property to the number of days you rented the property.

Bill's capital gains tax issue

How capital gains tax worksBill buys a property and rents it out for 2 years, but later decides to move into it and lives in it for 6 years. He then sells it, making a capital gain of $400,000.

He only has to pay CGT on a quarter of that amount, which works out to be 2 years out of the 8 that are not eligible for an exemption.

This means Bill would add $100,000 to his taxable income because of the CGT. He's also held onto the property for longer than 12 months, so after taking into account the 50% discount he's entitled to because of this, he would be able to get away with an increase to his taxable income of just $50,000.

Using your main residence as a business

If you're using your main residence to generate income, the CGT exemption is reduced accordingly. The Australia Tax Office has clear differences between the two following types of businesses: a "place of business" or a "place of convenience". Different rules may apply according to how you use your main residence, so it's best to consult your accountant to see which situation applies to you.

If you are over 55 and sell a small business property, there may be a $500,000 portion that is exempted from CGT. A sale of a small business when used to support your retirement is also exempt.

What can I deduct if I'm using my main residence as a business?

It's important to consider the additional cost of CGT that could apply to the business portion of your home. This could be applied to the sale of your main residence in the future.

Maintenance costs (allowable for both a place of business and a place of convenience)

  • Utility bills
  • Depreciation of office furniture and assets

Ownership costs (only allowed for a place of business)

  • Rent and mortgage repayments
  • Interest charged on the loan
  • Insurance premiums

Holding an asset for more than 12 months

While this isn't technically an exemption, if you buy an investment property and hold it for more than 12 months, you're entitled to a 50% discount on the amount of CGT payable. The discount is 33.3% for super funds.

What if I've made a loss when selling?

A capital loss is when you've sold the asset for less than your "reduced" cost base. A reduced cost base is the same as a normal cost base, although it also includes any balancing adjustments such as improvements to the property.

You can offset any capital losses you've made for the year against any capital gains you've made and this will reduce the amount of capital gains that'll be included in your taxable income. However, you can't deduct capital losses from taxable income. You can also carry any capital losses forward in future years and offset these against capital gains you've made.

Other tax tips: negative gearing benefits

Even if you can't improve or reduce your CGT bill, there are other tax savings you could be making. If the cost of repairing and maintaining an investment property outweighs the income it generates, you could take advantage of negative gearing and reduce your tax bill.

Frequently asked questions about capital gains tax

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