Capital Gains Tax on Investment Property in Australia 2026

Capital gains tax on investment property catches a lot of Australian investors off guard. Not because the rules are secret — they're published by the ATO in plain English — but because people don't work through an actual calculation until they're about to sell. By then, it can be too late to plan around it.

This guide walks through how CGT is actually calculated in 2026, who qualifies for the 50% discount, what you can include in your cost base, and how the main residence exemption works. There's a worked dollar example showing a realistic Sydney or Melbourne property scenario, plus the key changes from the 2026 Federal Budget that every property investor needs to know before they sell.

Use the free Leadkit capital gains tax calculator to run your own numbers in under a minute.

Last updated: May 2026.

Key takeaways

• CGT is not a separate tax — your capital gain is added to your ordinary income and taxed at your marginal rate.
• Hold a property for more than 12 months and you (as an individual or trust) reduce the taxable gain by 50% — this is the CGT discount.
• Your cost base includes more than the purchase price: stamp duty, legal fees, renovation costs and the selling agent's commission all reduce your capital gain.
• A property used as your principal place of residence (PPOR) for its entire ownership period is fully exempt from CGT.
• The 2026 Federal Budget announced the 50% CGT discount will be replaced by an inflation-indexed system from 1 July 2027 — properties acquired before 12 May 2026 are grandfathered under transitional rules.

Table of contents

1. What is capital gains tax on property?
2. CGT rates and 2026 tax brackets
3. How to calculate your capital gain — with worked examples
4. The 50% CGT discount explained
5. What goes into your cost base?
6. Main residence exemption and the 6-year rule
7. 2026 Budget changes: what's coming from 1 July 2027
8. How to minimise CGT legally
9. Frequently asked questions

What is capital gains tax on property? {#what-is-cgt}

A capital gain is the difference between what you sold an asset for and what it cost you to acquire and hold it. When you sell an investment property in Australia, that gain is added to your taxable income for the financial year of the sale and taxed at your marginal income tax rate.

CGT is not a separate, standalone tax. There's no CGT "account" you pay into. The gain simply flows through to your income tax return and is taxed as income — which is why the 50% CGT discount matters so much. Halving the taxable gain can drop you into a lower effective bracket on that gain.

The ATO triggers CGT at the contract date, not the settlement date. If you sign the contract in June 2026 but settle in August 2026, the gain is assessed in the 2025–26 financial year. This is a detail worth knowing for year-end tax planning.

CGT rates and 2026 tax brackets {#cgt-rates}

There's no separate CGT rate in Australia. Your net capital gain is taxed at whatever marginal rate applies to your total taxable income that year. The 2025–26 income tax brackets for Australian residents are:

The Medicare Levy of 2% applies on top of these rates for most taxpayers.

The practical implication: selling an investment property in a year when your other income is already high pushes a larger slice of the gain into the 37% or 45% bracket. Timing the sale — or using a capital loss from another asset — can make a real difference.

These ranges are based on estimates generated through Leadkit's income tax calculator using current ATO rates.

How to calculate your capital gain — with worked examples {#how-to-calculate}

The formula is straightforward:

Capital gain = Sale price − Cost base

If you've held the property for more than 12 months, you apply the 50% CGT discount before adding the gain to your income.

Example 1: Held more than 12 months (50% discount applies)

• Property purchased in 2019 for $700,000 (including stamp duty and legal fees in cost base)
• Sold in 2026 for $1,100,000
• Capital gain: $1,100,000 − $700,000 = $400,000
• After 50% CGT discount: $200,000 taxable gain
• Investor's other income: $100,000
• Total taxable income: $300,000
• Tax payable on $300,000: approximately $93,217 total income tax
• Tax payable on $100,000 alone: approximately $26,217
• CGT payable: ~$67,000
• Effective CGT rate on the original $400,000 gain: ~16.8%

Price indication only. Your accountant will confirm the final tax position after assessing your full circumstances.

Example 2: Held less than 12 months (no discount)

• Same property, same gain of $400,000
• No 50% discount — full $400,000 is added to $100,000 income
• Total taxable income: $500,000
• CGT payable: approximately $180,000
• Effective CGT rate on the $400,000 gain: ~45%

The difference between these two scenarios — simply by waiting past the 12-month mark — is roughly $113,000 in tax saved. This is why the contract date rule matters: always check you've crossed the 12-month threshold before exchanging contracts.

Use the Leadkit CGT calculator to run your own scenario with your actual purchase price, cost base additions, income and marginal rate.

The 50% CGT discount explained {#cgt-discount}

The CGT discount reduces your taxable capital gain by 50% — but only if certain conditions are met:

• You must be an Australian resident individual or a trust. Companies do not qualify for the 50% discount.
• The asset must have been held for at least 12 months before the CGT event (usually the contract date of sale).
• The asset must have been acquired on or after 20 September 1985 (pre-CGT assets have their own rules, and the 2026 Budget has proposed changes for these too).

For individuals, the 50% discount is the single most powerful CGT concession available. It effectively caps the maximum rate of tax on a long-held capital gain at 22.5% (45% ÷ 2), even for high-income earners.

Trusts can also access the 50% discount, but the mechanics depend on how the trust distributes income. Self-managed super funds (SMSFs) get a reduced discount of 33.3% rather than 50%. Speak to your accountant about which structure applies.

What goes into your cost base? {#cost-base}

The cost base is everything you paid to acquire, hold and sell the property. A higher cost base means a smaller capital gain — so getting this right is worth real money.

Cost base inclusions:

The distinction between a capital improvement and a repair matters here. Replacing a rotting deck with a new one of the same size is a repair — it's deductible each year but not added to the cost base. Extending the deck is a capital improvement — it's added to the cost base and reduces the eventual capital gain.

Across the investment property calculations processed through Leadkit, the cost base additions that investors most commonly underestimate are renovation costs and holding charges paid before the property was first rented. Keep every receipt.

For detailed guidance on cost base calculations, the ATO's cost base page is the authoritative reference.

Main residence exemption and the 6-year rule {#main-residence}

If a property was your principal place of residence (PPOR) for the entire period you owned it, the capital gain is fully exempt from CGT. No CGT at all.

The complexity comes when a property was your PPOR for only part of the ownership period — for instance, you bought it as your home, then turned it into an investment property, or vice versa.

Partial main residence exemption

If the property was your main residence for only part of the time you owned it, the exemption applies proportionally. The exempt portion is calculated as:

Exempt days ÷ Total ownership days × Capital gain

The 6-year rule (PPOR conversion)

This is one of the most valuable rules in Australian tax law for property investors. If you move out of your PPOR and rent it out, you can continue treating it as your main residence for CGT purposes for up to 6 years — provided you don't declare another property as your PPOR during that time.

Under this rule, an investor who moves to a new city for work, rents out their Sydney home, and sells within 6 years may pay zero CGT on the sale — even though the property was rented for most of that time.

The 6-year clock resets if you move back in. You can move in, move out, and start the 6-year rule again each time.

ASIC's MoneySmart provides a plain-English overview of the main residence exemption that's worth reading before you sell.

2026 Budget changes: what's coming from 1 July 2027 {#budget-changes}

The May 2026 Federal Budget announced two significant changes to CGT that every property investor should understand.

Replacement of the 50% CGT discount

From 1 July 2027, the flat 50% CGT discount for individuals will be replaced with an inflation-indexed cost base system. Instead of halving the gain, investors will adjust the original purchase price and cost base items for inflation before calculating the gain. A minimum tax rate of 30% will also apply to capital gains.

The practical impact will depend on how long you've held the property and how much inflation has occurred during that time. Properties held for many years in high-inflation periods may do better under indexation. Properties sold shortly after the 12-month threshold may not.

Transitional rules (grandfathering)

Properties acquired before 7:30 pm AEST on 12 May 2026 (Budget night) are subject to transitional rules. For these properties, only gains that accrue after 1 July 2027 will be subject to the new regime. Gains accrued up to that date can still be treated under the existing 50% discount rules.

Exception for new builds

Investors in new residential builds — acquired at any time — will be able to choose between the 50% discount regime and the new indexation regime, even after the new rules commence.

These are proposed changes, not yet law. The William Buck Federal Budget 2026 analysis and the Australian Treasury Budget website have the latest detail on the legislation timeline.

How to minimise CGT legally {#minimise-cgt}

There are several legitimate strategies Australian investors use to reduce their CGT exposure:

1. Hold for at least 12 months. The single most impactful step — triggering the 50% discount saves more tax than most other strategies combined.

2. Maximise your cost base. Every dollar added to the cost base reduces the capital gain. Keep records of every capital improvement, conveyancing fee, stamp duty receipt and selling cost.

3. Offset with capital losses. If you have other assets that have fallen in value — shares, a managed fund — selling them in the same financial year allows you to offset the losses against the capital gain. Capital losses carry forward indefinitely if you can't use them in the current year.

4. Time the sale for a low-income year. If you know your income will be lower next financial year (taking parental leave, between contracts, retiring), deferring the contract date past 1 July can save significant tax. Remember: CGT is triggered at exchange, not settlement.

5. Consider the 6-year PPOR rule. If the property was ever your main residence, check whether you can still apply the exemption or partial exemption.

6. Superannuation. SMSF tax rates on investment income max out at 15% (or 10% on gains after 12 months). Contributing proceeds to super before selling is a strategy worth discussing with your accountant.

For investment property strategy modelling, the Leadkit negative gearing calculator can help you understand the ongoing tax position of your property before you decide to sell.

Frequently asked questions {#faqs}

Q: How is CGT calculated on an investment property in Australia?

A: CGT is calculated by subtracting your cost base (purchase price plus stamp duty, legal fees, renovation costs and selling expenses) from the sale price. The resulting capital gain is added to your ordinary income for the year and taxed at your marginal rate. If you've owned the property for more than 12 months, you can apply the 50% CGT discount first — halving the taxable gain before it's added to your income. Use the free CGT calculator to run the numbers for your property.

Q: Do I pay CGT if I sell my primary residence?

A: No — if the property was your principal place of residence (PPOR) for the entire period you owned it, it's fully exempt from CGT under the main residence exemption. If you lived in it for only part of the time and rented it out for the rest, a partial exemption applies based on the proportion of days it was your PPOR. The 6-year rule may also allow you to treat a former PPOR as your main residence for CGT purposes for up to 6 years after you move out, provided you don't nominate another property as your PPOR in the meantime.

Q: What is the 50% CGT discount and who qualifies?

A: The 50% CGT discount allows Australian resident individuals and trusts to reduce a capital gain by 50% before it's included in taxable income — but only on assets held for at least 12 months. Companies do not qualify for the discount. SMSFs qualify for a reduced 33.3% discount. For an individual on a marginal rate of 45%, the discount effectively caps the tax on a long-held investment property gain at 22.5%. This discount is available under current law; from 1 July 2027 it will be replaced by an inflation-indexed cost base system under the 2026 Budget announcement.

Q: What costs can I include in the cost base to reduce CGT?

A: The cost base includes the purchase price, stamp duty, legal and conveyancing fees (at both purchase and sale), building and pest inspection costs, the selling agent's commission, marketing costs, and the cost of capital improvements (structural renovations, extensions, new kitchens or bathrooms). Routine repairs and maintenance are generally not included — those are claimed as annual deductions instead. Holding costs like interest and council rates can only be added to the cost base if you didn't claim them as deductions during the ownership period. Keep every receipt — a $50,000 renovation that reduces your capital gain by $50,000 could save you $10,000–$20,000 in tax.

Q: When is CGT triggered — at exchange or at settlement?

A: CGT is triggered at the contract date (exchange), not the settlement date. If you sign contracts to sell your investment property on 28 June 2026 and settle on 15 August 2026, the capital gain is assessed in the 2025–26 financial year — not 2026–27. This matters for year-end tax planning and for the 12-month holding period calculation. If you need to push the CGT event into the next financial year, you need to exchange after 1 July, not just settle after that date.

Q: Can I avoid CGT by buying another investment property?

A: No — Australia does not have a CGT rollover provision for investment properties the way some other countries do. Selling one investment property and buying another does not defer or eliminate the CGT. The only way to defer CGT on a property is through specific small-business rollover provisions, which don't apply to residential investment properties. The main legitimate strategies are maximising the cost base, using capital losses, timing the sale for a low-income year, and applying the main residence exemption where it applies.

Q: How does CGT work if I sell an investment property at a loss?

A: If your sale price is less than your cost base, you have a capital loss — not a capital gain. Capital losses cannot be offset against ordinary income (like wages or rental income), but they can be offset against other capital gains you make in the same year, or carried forward indefinitely to offset future capital gains. There's no 50% discount applied to capital losses — the full loss is available to offset future gains. If you're sitting on a capital loss from shares, a managed fund or another property, selling those assets in the same year as a property gain can significantly reduce your overall CGT liability.

Q: What are the proposed 2026 CGT changes for property investors?

A: The May 2026 Federal Budget proposed replacing the flat 50% CGT discount with an inflation-indexed cost base system from 1 July 2027, alongside a minimum 30% tax rate on capital gains. Properties already owned before Budget night (7:30 pm AEST, 12 May 2026) are subject to transitional rules — gains accrued up to 1 July 2027 can still benefit from the existing 50% discount regime, and only gains accruing after that date will be taxed under the new rules. Investors in new residential builds will be able to choose between the old and new regimes. These changes are proposed, not yet enacted into law, so speak to your accountant about how they affect your specific situation before selling.

Final tips before you sell

CGT on investment property is one of the most significant tax events most Australians will ever face. The decisions you make in the months before exchange — not after settlement — determine how much of that gain you keep.

The non-negotiables: verify your exact purchase and sale dates to confirm you've held for 12+ months, compile your complete cost base with every receipt, check whether any main residence exemption applies, and assess whether deferring the sale by days or weeks across a financial year end changes your marginal rate materially.

For properties acquired before 12 May 2026, understand how the 2026 Budget transitional rules apply to you. For properties acquired after Budget night, speak to your accountant about the new indexation regime and what it means for your long-term hold strategy.

Want to run your own CGT scenario before you sell? Use the free capital gains tax calculator — enter your purchase price, cost base additions, sale price and income, and get an instant indication. You can also model your overall investment property tax position with the negative gearing calculator.

Explore the full suite of finance and property calculators on Leadkit for tools covering yield, property growth and borrowing power — all built for Australian investors.

Methodology note: Capital gain figures and tax estimates in this post are generated using Leadkit's CGT and income tax calculators, which apply current ATO marginal rates and the 50% CGT discount rules. Cost base inclusions follow ATO guidelines. Estimates are indicative and based on simplified scenarios — individual circumstances will vary.

This is a price indication only. Your accountant will confirm the final tax position after assessing your full circumstances.

This post is general information only and does not constitute financial, tax or legal advice. Speak to a registered tax agent or accountant before making decisions about selling an investment property.