Selling an investment property can result in a substantial capital gains tax liability. However, the calculation is rarely as simple as subtracting the original purchase price from the sale price.
Stamp duty, legal fees, selling costs, capital improvements, depreciation, capital works deductions and periods of private use can all affect the final result. The ownership structure also matters because individuals, trusts, companies and superannuation funds can receive different CGT outcomes.
Property owners must now consider another layer of complexity. The 2026–27 Federal Budget introduced significant reforms to the CGT discount, with the core measures legislated in June 2026. The reforms generally apply to gains accruing from 1 July 2027, rather than to gains accumulated before that date.
When Does CGT Apply to an Investment Property?
Capital gains tax generally applies when you sell or otherwise dispose of a property acquired on or after 20 September 1985, unless an exemption or rollover is available. Property acquired before that date is usually treated as a pre-CGT asset, although separate rules can apply to major capital improvements made after acquisition.
CGT is not a separate tax. The taxpayer’s net capital gain is included in assessable income and taxed through the income tax system.
For a property sale, the CGT event usually occurs on the date the sale contract is signed, not the settlement date. This timing can determine the income year in which the gain or loss must be reported.
For example, if a contract is signed on 25 June but settlement occurs in August, the CGT event will generally fall in the income year ending on 30 June. Property owners should therefore obtain a tax estimate before signing the contract rather than waiting until settlement.
How Is the Capital Gain Calculated?
The starting point is generally:
Capital proceeds less cost base equals capital gain
Capital proceeds will usually be the sale price. The market-value substitution rules may apply where a property is transferred for less than market value, gifted to a family member or disposed of under a non-arm’s-length arrangement.
The cost base is divided into five elements and may include:
- the original purchase price;
- transfer stamp duty;
- conveyancing and eligible legal fees;
- buyer’s agent and valuation fees;
- selling-agent commission;
- advertising and eligible sale costs;
- qualifying capital improvements and renovations;
- costs of preserving or defending ownership; and
- certain ownership costs that were not deductible.
The cost base generally cannot include expenditure that has already been claimed, or can still be claimed, as an income tax deduction.
Capital Works and Depreciation Can Change the Result
Capital works deductions claimed for eligible construction and structural improvements ordinarily reduce the amount that can remain in the property’s CGT cost base.
This means capital works may deliver deductions while the property is rented but can also increase the capital gain when the property is sold. The adjustment may apply to amounts the owner was entitled to claim, subject to the relevant rules, and not merely the amount entered in previous tax returns.
Depreciating assets such as appliances, carpets and window coverings may require separate balancing-adjustment treatment rather than being included entirely in the property’s CGT calculation.
A depreciation schedule can be a valuable starting point, but it should be reconciled with the property’s actual ownership period, private-use periods, previous tax returns and sale documentation.
Does the 50% CGT Discount Still Apply?
Under the existing rules, an eligible Australian-resident individual or trust may generally reduce a capital gain by 50% where the asset has been held for at least 12 months.
Companies are generally not entitled to the 50% CGT discount. Different rules also apply to complying superannuation funds and to foreign or temporary residents.
Capital losses are applied before the CGT discount. A net capital loss can ordinarily be carried forward and used against eligible capital gains in a later year, but it cannot generally be deducted from salary, rent or other ordinary income.
The 50% CGT discount does not mean the sale is taxed at a rate of 50%. It means that only the discounted portion of the eligible gain is included in the taxpayer’s assessable income.
What Did the 2026–27 Federal Budget Change?
From 1 July 2027, the Government will replace the general 50% CGT discount for affected individuals, trusts and partnerships with:
- inflation-based cost-base indexation; and
- a minimum 30% tax rate on relevant real capital gains.
The changes are intended to tax the gain remaining after allowing for inflation rather than applying a flat 50% reduction to the nominal gain. The reforms generally apply to gains accruing from 1 July 2027, not to the entire gain accumulated over the property’s ownership period.
The new rules do not apply to companies in the same way because companies were already generally ineligible for the 50% CGT discount.
The minimum tax is imposed when an affected capital gain is realised. It is not an annual tax on unrealised increases in the property’s market value.
What Happens to Property Owned Before 1 July 2027?
For property already owned when the new CGT rules commence, the gains accruing before and after 1 July 2027 will need to be distinguished.
Broadly:
- gains accruing before 1 July 2027 retain the previous treatment, including access to the 50% CGT discount where the taxpayer is eligible; and
- gains accruing from 1 July 2027 are subject to the new indexation and minimum-tax framework.
This makes accurate property values and supporting evidence increasingly important.
Treasury released the second tranche of draft legislation for consultation in August 2026. Its subjects included methods for calculating gains arising before and after 1 July 2027, treatment of property transfers following death or relationship breakdown, part-year tax residency and transitional valuation or apportionment requirements. The consultation closed on 21 August 2026.
Because these more detailed implementation provisions were still moving through the legislative process as at the date of this article, property owners should confirm the final enacted rules and ATO guidance before commissioning a valuation or relying on a particular apportionment method.
Special Treatment for Qualifying New Residential Builds
Investors in qualifying new residential builds may be able to choose between the existing 50% CGT discount and the new indexation and minimum-tax arrangements.
Whether a property qualifies as a new residential dwelling is technical. Treasury’s second-tranche consultation proposed that a dwelling generally be regarded as new where it genuinely adds to housing supply and is acquired within 24 months after a certificate of occupancy is issued. However, the supporting details were still being finalised at the time of writing.
An investor should not assume that an off-the-plan purchase, recently completed dwelling or substantially renovated property automatically qualifies.
What If the Investment Property Was Previously Your Home?
A full or partial main-residence exemption may apply where the property was your home for part of the ownership period.
Under the six-year absence rule, you may generally continue treating a former home as your main residence for up to six years while it is used to produce rental income, provided the relevant conditions are satisfied.
If the property is not used to produce income after you move out, it may potentially continue to be treated as your main residence indefinitely. However, you cannot generally treat another property as your main residence for the same period, apart from a limited overlap when moving between homes.
The six-year period may restart if you move back into the property and genuinely re-establish it as your main residence before moving out again.
The Home First Used to Produce Income Rule
Where a home is first used to produce assessable income after 20 August 1996, a special market-value rule may apply.
Broadly, if the requirements are satisfied, the property is treated as having been acquired at its market value when it was first rented or otherwise used to earn income. The subsequent capital gain is then calculated from that date and value rather than from the original acquisition cost.
This makes a defensible market valuation at the first income-producing date particularly important. An informal online estimate may not provide sufficient evidence if the calculation is later reviewed by the ATO.
Keep Your Property Records
Property owners should retain:
- purchase and sale contracts;
- settlement statements;
- stamp duty and legal documents;
- loan and refinancing records;
- renovation and improvement invoices;
- depreciation schedules;
- rental statements;
- evidence of private-use periods;
- property valuations; and
- selling-agent and advertising invoices.
Documents affecting the cost base generally need to be retained until at least five years after the relevant CGT event. Keeping records only for five years after the original purchase may leave the owner unable to substantiate the cost base when the property is sold many years later.
Frequently Asked Questions
Q1. How much CGT will I pay when selling an investment property?
There is no fixed CGT rate for individuals. The net capital gain is included in taxable income and taxed at the individual’s applicable marginal rates. The ultimate result depends on the cost base, capital losses, available discount or indexation treatment, ownership structure and other taxable income.
Q2. Can stamp duty and legal fees be included in the cost base?
Eligible acquisition costs such as transfer stamp duty and conveyancing fees can generally form part of the cost base, provided they have not otherwise been claimed as deductions.
Q3. Can I claim renovation costs in the cost base?
Qualifying capital improvements may form part of the cost base. However, amounts already deducted, or still deductible, cannot generally be included again. Capital works deductions may also require a cost-base adjustment.
Q4. Does the six-year rule apply automatically?
No. The owner must satisfy the relevant main-residence conditions and choose to continue treating the former home as their main residence. The choice can affect the CGT treatment of another home owned during the same period.
Q5. Is CGT based on the contract date or settlement date?
For most property sales, the CGT event occurs when the contract is signed. Settlement may occur in a later income year, but it does not usually determine the reporting year.
Q6. Should I obtain a valuation at 1 July 2027?
A valuation or prescribed apportionment method may be relevant to separating pre-commencement and post-commencement gains. However, the detailed transitional requirements were still being finalised as at 6 September 2026. Obtain advice before commissioning or relying on a valuation.
Plan Before Signing the Sale Contract
The date you sign the contract can determine the income year in which the capital gain is reported. Before listing or selling an investment property, review the ownership structure, estimated sale proceeds, cost-base evidence, depreciation history, capital works deductions, available capital losses and any main-residence period.
Kintax Accountants can prepare an investment property CGT estimate, review your cost-base records and explain how the 2026 reforms may affect a proposed future sale.
Contact Kintax Accountants
Phone: 0399393692
Email: info@kintax.com.au
Office: Level 1, 287A Spring Street, Reservoir VIC 3073
Enquiries: Request a consultation
Based in Reservoir, Kintax Accountants assists property investors throughout Melbourne’s northern suburbs and greater Melbourne with rental property taxation, CGT calculations, record reviews and tax planning.
Important information: This article provides general tax and accounting information only. It does not constitute personal tax, investment, financial or legal advice. CGT outcomes depend on the ownership structure, tax residency, acquisition and contract dates, property use, transaction history and the legislation applying at the relevant time. Detailed implementation rules for parts of the 2026 reforms were still being finalised as at the review date.
