Last updated: July 2026 · Reviewed by John Pierre Saliba, Director and Mortgage Broker, MFAA Accredited
How CGT Works on Investment Property
Capital gains tax applies when you sell an investment property for more than you paid for it. The ATO does not treat CGT as a separate tax. Instead, your capital gain is added to your taxable income for the financial year you sell, and you pay tax at your marginal rate.
The calculation has two core components. First, your cost base: this is the total of your original purchase price plus stamp duty, conveyancing fees, building and pest inspections, and any capital improvements made during ownership. Second, your capital proceeds: the sale price minus selling costs such as agent commissions and legal fees.
Your capital gain equals the capital proceeds minus the cost base. If you held the property for more than 12 months, you may apply the CGT discount, which reduces the taxable portion of the gain.
The 50% CGT Discount
Australian individual taxpayers who hold an investment property for at least 12 months before selling are eligible for the 50% CGT discount. This means only half of the capital gain is added to your taxable income.
For properties purchased before 12 May 2026, the full 50% discount applies. The discount is available to individuals and trusts (at 50%) and complying superannuation funds (at 33.33%). Companies are not eligible for the CGT discount.
The 12-month holding period is calculated from the contract date of purchase to the contract date of sale. If you sell even one day short of 12 months, the full capital gain is taxable with no discount.
May 2026 Budget Changes to CGT
The May 2026 Federal Budget proposed reducing the CGT discount for established (existing) investment properties purchased after 7:30pm AEST on 12 May 2026. The exact level of the reduced discount is still subject to Senate negotiation as of June 2026.
New residential builds retain the full 50% CGT discount regardless of when they are purchased. This is a deliberate policy incentive to direct investment toward housing supply.
Properties purchased or under binding contract before the Budget cutoff are fully grandfathered at the existing 50% discount. If you already own investment property, your CGT treatment does not change.
The May 2026 Budget changes make loan structuring more important than ever for investors. How you structure your borrowing, whether you use an offset account, whether you draw down for improvements, all of this affects your cost base and ultimately your CGT bill. Whether you own in Bondi or Parramatta, I work alongside your accountant to make sure the loan structure supports your tax strategy.
How to Calculate Your Capital Gain
Here is a worked example. You purchased an investment unit in a suburb like Alexandria in 2019 for $900,000 and sold it in 2026 for $1,200,000 after seven years of ownership.
Building the cost base
- Purchase price: $900,000
- Stamp duty: $36,000
- Legal fees (purchase): $2,500
- Building and pest inspection: $800
- Renovation costs (new kitchen, bathroom): $45,000
- Total cost base: $984,300
Calculating the gain
- Sale price: $1,200,000
- Agent commission (2%): $24,000
- Legal fees (sale): $1,500
- Capital proceeds: $1,174,500
- Capital gain: $1,174,500 minus $984,300 = $190,200
- After 50% discount (held 7 years): $95,100 added to taxable income
- Tax at 37% marginal rate: approximately $35,187
Without the discount (if held under 12 months), the full $190,200 would be taxable, resulting in approximately $70,374 in tax. The discount saves over $35,000 in this example.
Six Strategies to Minimise CGT
1. Hold for at least 12 months
This is the most fundamental strategy. Selling before the 12-month mark means the full capital gain is taxable. Holding for at least 12 months and one day activates the 50% CGT discount (for pre-Budget purchases), immediately halving your tax liability on the gain.
2. Maximise your cost base deductions
Keep records of every capital expenditure: stamp duty, conveyancing, building reports, capital improvements, and selling costs. The higher your cost base, the lower your capital gain. Renovations that improve the property (not routine repairs) are added to your cost base. This includes new kitchens, bathrooms, extensions, and structural work.
3. Time the sale to a lower income year
Because the capital gain is added to your taxable income, selling in a year when your other income is lower (such as a year you take extended leave, reduce hours, or transition between jobs) means the gain is taxed at a lower marginal rate. This can save thousands.
4. Renovate before selling
Capital improvements made before sale serve a dual purpose. They increase the property's market value and they increase your cost base. A $50,000 renovation that lifts the sale price by $80,000 only adds $30,000 to your capital gain, rather than the full $80,000 increase appearing as gain on an unrenovated property.
5. Use the 6-year absence rule for a former main residence
If you once lived in the property as your principal place of residence (PPOR), you can move out, rent it, and still treat it as your main residence for CGT purposes for up to six years. Sell within six years and the gain is entirely CGT-free, provided you do not claim another property as your PPOR during that period. You can reset the six-year clock by moving back in.
6. Consider new build advantages
Under the May 2026 Budget changes, new builds retain the full 50% CGT discount regardless of purchase date. If you are purchasing a new investment property after the Budget, a new build preserves the full discount that may be reduced for established properties.
CGT and Negative Gearing Together
Under the new rules from 1 July 2027, rental losses on established properties purchased after 12 May 2026 are quarantined. These quarantined losses cannot be offset against salary income, but they can be carried forward and offset against future capital gains on the same property when you sell.
This means years of accumulated rental losses could reduce your CGT bill at the point of sale. Your loan structure matters here: interest costs contribute to the rental loss, which builds the pool of quarantined losses available to offset the eventual capital gain. Structuring your borrowing correctly from day one can result in a materially lower CGT bill years later.
When to Get Advice
CGT on investment property involves interactions between property law, tax law, and lending. Always consult your accountant or tax adviser before selling an investment property. They can model the exact CGT impact based on your personal tax situation.
Where a mortgage broker fits in: your loan structure directly affects your cost base and your ongoing deductible expenses. Whether you use an offset account, whether you capitalise interest, how you fund improvements, all of these decisions have CGT consequences. I work alongside your accountant to make sure the lending side supports your overall tax strategy, at no cost to you.
