Quick answer: CGT on an investment property is not fixed — it depends on when you sell, how you have owned it, and what you can add to your cost base. Hold for more than 12 months to halve the gain with the 50% discount, use the 6-year rule if the property was once your home, time the sale for a low-income year, and get a valuation near 30 June 2027 to lock in your pre-reform treatment before the discount is replaced by indexation.
You buy an investment property, hold it for a decade, sell it for a decent profit, and the tax office takes nearly half. That is the story most property investors dread, and it is the reason many hold properties longer than they should.
The tax bill on a property sale is not fixed. It changes depending on when you sell, how you have owned it, what you spent along the way, and what structure you used. Get those variables right and you keep tens of thousands more. Get them wrong and you fund someone else’s budget surplus.
What You Actually Owe: The CGT Formula
Capital gains tax is the tax on the difference between what you paid for a property, including improvements and transaction costs, and what you receive when you sell it. That sounds simple. The details are where the money is.
Your cost base is not just the purchase price. It includes stamp duty, legal fees, and the agent’s commission when you sell. It also includes capital improvements like a new kitchen or a deck. What it does not include is anything you have already claimed as a tax deduction, like depreciation or capital works write-offs. Those deductions reduce your holding costs each year, but they come back out of your cost base when you sell, which increases the gain.
Here is a worked example from the ATO. Karl and Louisa bought a rental property in November 2016 for $750,000. They paid $30,000 in stamp duty and legal fees. They built a fence for $6,000. Over seven years they claimed $35,000 in capital works deductions and $5,000 in depreciation. They sold in June 2026 for $900,000, with $10,000 in sale costs. Their cost base came to $756,000 after subtracting those claimed deductions. The capital gain was $144,000.
Because they owned the property for more than 12 months, they applied the 50% CGT discount, reducing the taxable gain to $72,000. Split between them as joint tenants, each declared $36,000 in their tax return.
Every depreciation claim you make lowers what you can subtract from your sale price later. The deduction is not free money. It is a deferral. The $40,000 Karl and Louisa claimed over seven years came straight off their cost base at sale time.
Capital expenses you can add to your cost base include conveyancing costs, title search fees, and valuation fees from a private valuation conducted by your solicitor. Keep every invoice. A missing receipt on a $35,000 renovation is $35,000 of extra taxable gain you did not actually make.
The 50% Discount and the 2027 Shift
If you hold an investment property for more than 12 months, you halve the capital gain before it hits your taxable income. A $200,000 gain becomes $100,000 of assessable income. At a 37% marginal rate, that is the difference between paying $74,000 and $37,000 in tax. The discount is available to individuals, trusts, and partnerships.
That discount has been the backbone of property investment tax planning in Australia for decades. It ends on 30 June 2027.
From 1 July 2027, the 50% CGT discount is replaced by cost base indexation for gains that accrue from that date. Indexation adjusts your cost base for inflation, so you are taxed on the real gain rather than the nominal one. A minimum tax rate of 30% also applies to relevant capital gains under the new arrangements.
The critical detail for anyone holding property now: the change is prospective. Gains that built up before 1 July 2027 keep the existing 50% discount. Only gains accruing after that date fall under the new rules. This means 1 July 2027 is not a hard deadline to sell. It is a date you need to be ready for with records and valuations.
The negative gearing changes are separate legislation. Existing investment decisions made before 12 May 2026 are grandfathered under the negative gearing reforms. If you owned your property before that cut-off, your negative gearing treatment is unchanged.
What you should do now: get a market valuation of your property close to 30 June 2027. That valuation establishes the cost base for the post-reform period and locks in how much of your gain qualifies for the old 50% discount. Without it, you are guessing, and the ATO does not accept guesses. For a deeper look at how the reforms affect investment property owners, see our guide to the 2026 CGT changes.
The 6-Year Rule: Your Former Home, Tax-Free
Your main residence is exempt from CGT. If you lived in a property before renting it out, you can keep treating it as your main residence for up to 6 years while it generates rental income. During that period, the property remains fully CGT-exempt.
The rules are specific. The property must have been your main residence first. You cannot buy a rental, move in for a week, and claim the exemption. The ATO looks at where your belongings were, where your mail went, whether utilities were in your name, and how long you actually lived there. As the ATO explains, no single factor is decisive, but the evidence collectively tells the story.
If the property is not rented and sits vacant, the exemption continues indefinitely without the 6-year cap. That matters if you move out but do not lease it straight away, or if you use it as a holiday house.
Each period of absence gets its own 6-year window. Move out, rent for four years, move back in and live there genuinely for a year, then move out and rent again. The clock resets. The reset requires genuine re-occupation. Moving a few boxes back in does not count.
The catch is you can only claim one main residence at a time. If you buy a new home and nominate it as your main residence for the same period, you lose the exemption on the old property for that overlap. Choose which property to nominate based on which one is likely to generate the larger capital gain. If your former home has doubled in value and your new one has barely moved, it is probably the former home you want to keep exempt.
Track the dates: when you moved out, when the first lease started, when each lease ended, when you moved back in. Your accountant needs those dates, not your recollection of them.
Sell, Hold, Refinance, or Restructure
Most CGT advice treats the sale as inevitable. It is not. You have four paths, and each changes your tax outcome differently.
Refinance. CGT is triggered when you enter into a contract of sale, not when settlement occurs. Refinancing is not a sale. You unlock equity without triggering a CGT event. The property keeps growing, the tax stays deferred, and you use the released equity to fund your next purchase. The loan interest on the equity release may itself be deductible if the funds are used for investment purposes. This path preserves your full unrealised gain and keeps the pre-2027 CGT treatment intact for the portion accrued before the reform date.
Hold. If the property is performing and you have no urgent need to sell, holding past 1 July 2027 is not a disaster. The gain accrued before that date still gets the 50% discount. Only future growth faces the new indexation and 30% minimum rate. A property producing solid rental income with manageable debt is a going concern, not a tax problem.
Sell. If you were already planning to sell, doing so before 30 June 2027 locks in the 50% discount on the entire gain. After that date, only the pre-2027 portion qualifies. The decision should start with your investment goals, not the tax date. Transaction costs, lost rental income, and future capital growth all weigh against a tax-driven sale.
Restructure into an SMSF. Self-managed super funds get a 33% CGT discount and a 15% tax rate on gains, reducing the effective rate to approximately 10%. When SMSF assets are used to start a retirement pension, capital gains become completely tax-free. The trade-off is complexity and cost. SMSF property purchases come with strict rules about borrowing, related-party transactions, and sole-purpose tests. But for investors approaching retirement with a large unrealised gain, the 10% effective rate versus their marginal rate of 37% or 45% represents a significant saving.
PropSpotter’s coaching system guides investors through the full lifecycle, including exit decisions. The data system tracks suburb-level growth metrics and flags when a market’s trajectory suggests it may be time to consider selling, refinancing, or reallocating capital. The decision to exit is as important as the decision to buy, and it deserves the same data-backed rigour.
Maximising Your Cost Base and Timing Your Exit
Your cost base is the single largest lever you control at the point of sale. Every dollar you can legitimately add to it is a dollar that does not get taxed.
Capital expenses you can include: conveyancing costs, title search fees incurred during conveyancing, valuation fees from a private valuation conducted by your solicitor, stamp duty on the transfer, and initial repairs done before tenants move in. If you painted walls, replaced broken light fittings, and repaired doors before the first tenant, those are capital expenses, not repairs. They go into the cost base.
What you cannot include: regular repairs and maintenance during a tenancy. Those are deductible against rental income in the year they occur, but they do not increase your cost base. And critically, capital works deductions you have already claimed must be subtracted from the cost base. The ATO’s formula is explicit: purchase price plus purchase costs plus improvements plus sale costs, minus capital works deductions, minus decline in value deductions.
Timing is the second lever. A capital gain is added to your taxable income and taxed at your marginal rate for that income year. Selling in a year when your income is low, after retirement or during parental leave or a career break, puts the gain through a lower tax bracket.
The time of the CGT event is when you enter into the contract, not when settlement occurs. If you sign the contract on 28 June 2027, the gain falls in the 2026-27 income year and the full 50% discount applies. If you sign on 2 July 2027, it falls in the 2027-28 year and the new rules govern the portion of gain accruing from that date. Two days can change the tax treatment of decades of growth. Plan the contract date, not the settlement date.
You also get a pre-sale valuation added to your costs. For guidance on determining your property’s market value before a sale, see our guide on how to value an investment property using comparable sales.
Offsetting Gains With Losses
Capital losses reduce capital gains dollar for dollar before any discount is applied. A capital loss can be carried forward indefinitely and offset against future capital gains, but it cannot be used against employment or other income.
This is a use-it-or-lose-it asset sitting on your tax return. If you sold shares at a loss three years ago and never used the capital loss, it is still there. Dig it out before you sell the property.
The order matters. Apply capital losses first, then the 50% CGT discount. Losses offset the gross gain, not the discounted gain. A $50,000 capital loss applied against a $200,000 gross gain leaves $150,000, which the 50% discount then reduces to $75,000 taxable. If you applied the discount first and then the loss, you would only offset $50,000 against $100,000, leaving $50,000 taxable. The ATO’s ordering rules work in your favour.
For investors in eligible affordable housing, a 60% CGT reduction is available. This is a niche concession but worth knowing if your portfolio includes community housing or NRAS properties.
When you sell an investment property, tax is not a fixed percentage of your profit. It is the output of a series of decisions you make before you sign the contract. Hold for more than 12 months to halve the gain. Live in it first to access the 6-year rule. Time the sale for a low-income year. Max out your cost base with every eligible expense. Offset lingering capital losses. And if you are holding past 1 July 2027, get a valuation near the transition date to lock in your pre-reform discount.
The tax office will take its share. The question is how much of it you hand over unnecessarily.