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 are worked dollar examples using the current 2026–27 tax brackets, a joint-ownership comparison, the withholding rule that trips up sellers at settlement, and the 2026 Federal Budget changes every property investor needs to understand before they sell.

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

Last updated: September 2026.

Key takeaways

• Capital gains tax on an Australian investment property is not a separate tax. Your net capital gain is added to your ordinary income for the year and taxed at your marginal rate, so the amount you pay depends entirely on what else you earned.
• Hold the property for more than 12 months and individuals and trusts halve the taxable gain under the 50% CGT discount. On a $400,000 gain for someone earning $100,000, that discount is worth roughly $90,000 in tax.
• The maximum effective CGT rate on a discounted gain is 22.5% (45% ÷ 2), or 23.5% once the 2% Medicare levy is counted — versus 45% on a gain from a property sold inside 12 months.
• Your cost base is far more than the purchase price. Stamp duty, legal fees, building and pest reports, capital improvements, agent commission and marketing costs all reduce the taxable gain.
• A property that was your principal place of residence (PPOR) for the whole ownership period is fully CGT-exempt, and the 6-year absence rule can extend that exemption for up to six years after you move out.
• Every property vendor now needs an ATO clearance certificate. Since 1 January 2025, 15% of the sale price is withheld at settlement on all property sales — no price threshold — unless you give the buyer a valid certificate.
• The 50% discount is being replaced from 1 July 2027 with an inflation-indexed cost base system and a 30% minimum rate, with transitional rules for properties acquired before 12 May 2026.

Table of contents

1. What is capital gains tax on property?
2. What are the CGT rates and 2026–27 tax brackets?
3. How do you calculate your capital gain?
4. How does the 50% CGT discount work?
5. How is CGT calculated on a jointly owned property?
6. What goes into your cost base?
7. How does the main residence exemption and 6-year rule work?
8. How do you actually report and pay CGT?
9. What's changing from 1 July 2027?
10. How can you legally reduce CGT on an investment property?
11. Frequently asked questions

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

Capital gains tax on property is the tax you pay on the profit when you sell — the difference between the sale price and your cost base. In Australia that gain is added to your taxable income for the financial year the contract is signed and taxed at your marginal income tax rate. There is no separate CGT rate and no separate CGT bill.

That single fact drives everything else in this guide. Because the gain flows through your income tax return, the tax you pay on an identical $400,000 gain can differ by tens of thousands of dollars depending on your salary, your ownership structure and how long you held the property.

The ATO calls the sale of a property a CGT event A1. It's triggered at the contract date, not the settlement date. Sign the contract on 28 June 2026 and settle in August, and the gain lands in the 2025–26 financial year.

That timing rule cuts both ways. It's the single most useful lever in year-end tax planning — and the most common thing investors get wrong when they assume settlement is what counts.

What are the CGT rates and 2026–27 tax brackets? {#cgt-rates}

There is no separate CGT rate in Australia — your net capital gain is taxed at your marginal income tax rate. For the 2026–27 financial year, the resident rates are:

The 2% Medicare levy applies on top of these rates for most taxpayers, which lifts the top effective rate on a discounted capital gain to 23.5%.

The right-hand column is the one worth internalising. Because the 50% discount halves the gain before it hits your return, a long-held gain is effectively taxed at half your marginal rate — which is why a $400,000 gain and a $400,000 pay rise are taxed very differently.

The practical implication: selling in a year when your other income is already high pushes more of the gain into the 37% and 45% brackets. Timing the sale, splitting ownership, or using a capital loss from another asset can all pull the effective rate down.

These figures are generated using Leadkit's income tax calculator, which applies current ATO resident marginal rates.

How do you calculate your capital gain? {#how-to-calculate}

The formula is: capital gain = sale price − cost base. If you've held the property for more than 12 months, halve that gain, then add the result to your other income for the year and tax it at your marginal rate.

Here's what that looks like in real dollars, using the 2026–27 brackets above.

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

• Property purchased in 2019 for $700,000 (including stamp duty and legal fees in the cost base)
• Sold in 2026 for $1,100,000
• Capital gain: $1,100,000 − $700,000 = $400,000
• After the 50% CGT discount: $200,000 taxable gain
• Investor's other income: $100,000
• Total taxable income: $300,000
• Tax on $300,000: $100,870
• Tax on $100,000 alone: $20,520
• CGT payable: $80,350 (about $84,350 once the 2% Medicare levy is added)
• Effective CGT rate on the original $400,000 gain: 20.1%

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

• Same property, same $400,000 gain
• No 50% discount — the full $400,000 is added to $100,000 of income
• Total taxable income: $500,000
• Tax on $500,000: $190,870
• CGT payable: $170,350 (about $178,350 with the Medicare levy)
• Effective CGT rate on the $400,000 gain: 42.6%

The difference between those two scenarios is $90,000 — created by nothing except crossing the 12-month mark. That's why the contract date rule matters so much: check the anniversary of your purchase contract before you exchange, not after.

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

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

How does the 50% CGT discount work? {#cgt-discount}

The 50% CGT discount reduces your taxable capital gain by half, provided you're an Australian resident individual or a trust and you held the asset for at least 12 months before the CGT event. It's the single most valuable CGT concession available to property investors under current law.

The conditions in full:

• You must be an Australian resident individual or a trust. Companies do not qualify at all — a company pays 25% or 30% on the full gain with no discount.
• The asset must have been held for at least 12 months before the CGT event (measured from contract date to contract date, and the day of acquisition doesn't count).
• The asset must have been acquired on or after 20 September 1985. Genuine pre-CGT assets sit outside the regime entirely.

For individuals, the discount effectively caps tax on a long-held gain at 22.5%, even for someone in the top bracket.

Self-managed super funds get a reduced discount of 33.3%, not 50%. Because an SMSF in accumulation phase pays 15% on income, a gain on an asset held more than 12 months is taxed at an effective 10%. A fund fully in pension phase may pay nothing at all. That gap — 10% versus 22.5% — is why ownership structure is decided at purchase, not at sale.

Trusts can access the 50% discount, but the mechanics depend on how the trust distributes the gain and who the beneficiaries are. The discount is applied and then streamed, so the beneficiary's own marginal rate ultimately determines the tax.

How is CGT calculated on a jointly owned property? {#joint-ownership}

On a jointly owned property, the capital gain is split according to each owner's legal interest on the title, and each owner reports their share in their own tax return at their own marginal rate. For a standard 50-50 joint tenancy, that means two half-gains rather than one whole one.

That split is worth real money whenever the gain would push a single owner into the top bracket. Using the same $400,000 gain from Example 1, but owned 50-50 by two people each earning $100,000:

The joint structure saves $9,650 on an identical property and an identical gain, because neither owner's half of the discounted gain is fully exposed to the 45% bracket.

The catch: you can't choose the split at sale time. The ATO looks at legal ownership as recorded on the title, not at who paid the deposit or who claimed the rental deductions. Changing the ownership proportions later is itself a CGT event, and usually triggers stamp duty too.

The Leadkit CGT calculator models all three common structures — individual, joint 50-50 and SMSF — so you can see the difference before you commit to one. It's Leadkit's own tool rather than neutral third-party data, and the outputs are indicative estimates rather than tax advice.

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

Your cost base is everything you paid to acquire, hold, improve and sell the property — not just the purchase price. A higher cost base means a smaller capital gain, so getting this right is worth real money.

The ATO splits it into five elements. In practice, for a residential investment property, these are the items that matter:

Two traps sit inside that table.

The capital improvement versus repair distinction. Replacing a rotting deck with a new one of the same size is a repair — deductible each year, but not added to the cost base. Extending the deck is a capital improvement — not deductible, but it lifts the cost base and reduces the eventual gain. You get the benefit once, in one place, and it matters which.

Capital works deductions reduce your cost base. If you claimed Division 43 capital works deductions at 2.5% a year on the building, those amounts come off your cost base when you sell. On a property held for a decade, that can be tens of thousands of dollars of gain you weren't expecting — a genuinely common surprise for investors who bought a newer build.

Across the CGT estimates run through the Leadkit calculator, the cost base items people most often leave out of the "buying and selling costs" field are the pre-rental holding charges and the original stamp duty. Both are legitimate, and both are usually sitting in a conveyancer's settlement statement from years earlier. Keep every receipt.

For the authoritative detail, the ATO's cost base page is the reference.

How does the main residence exemption and 6-year rule work? {#main-residence}

If a property was your principal place of residence for the entire period you owned it, the capital gain is fully exempt from CGT. No calculation, no discount, no tax.

The complexity starts when a property was your PPOR for only part of the ownership period — you bought it as your home and later rented it out, or the reverse.

Partial main residence exemption

When the property was your main residence for only part of the time you owned it, the exemption applies proportionally:

Exempt gain = Capital gain × (Exempt days ÷ Total ownership days)

If you owned a property for 12 years and lived in it for the first four, roughly a third of the gain is exempt and the rest is taxable — subject to the 50% discount on the taxable portion.

The 6-year absence rule

If you move out of your PPOR and rent it out, you can keep treating it as your main residence for CGT purposes for up to six years — provided you don't nominate another property as your PPOR over the same period. The ATO calls this the absence rule.

An investor who relocates to Brisbane for work, rents out their Sydney home, and sells within six years may pay zero CGT on the sale, even though the property was tenanted for nearly all of it.

Two details worth knowing:

• The clock resets. Move back in, re-establish the property as your main residence, and a fresh six-year period starts if you move out again.
• It's one property at a time. You can only have one main residence for CGT purposes at any moment (apart from a six-month overlap when moving between homes), so applying the absence rule to the old place means the new one isn't exempt for those years.

There's also a market value rule: when a property first becomes income-producing after being your home, its cost base resets to the market value on that date. Get a valuation at the point you start renting it out — it's much harder to substantiate years later.

ASIC's MoneySmart has a plain-English overview of capital gains tax worth reading before you sell.

How do you actually report and pay CGT? {#reporting-paying}

You report a capital gain in the capital gains section of your individual tax return for the financial year the contract was signed, and it's paid as part of your income tax assessment — there's no separate CGT payment. For most investors the bill arrives months after settlement, which is the part that hurts.

Three practical mechanics that catch sellers out:

1. Foreign resident capital gains withholding applies to everyone. Since 1 January 2025, 15% of the sale price is withheld at settlement on every property sale, at any price — the old $750,000 threshold and 12.5% rate are gone. Australian resident vendors avoid the withholding only by giving the purchaser a valid ATO clearance certificate before settlement. Certificates are free and usually issued within days, but can take up to 28 days, so apply as soon as the property is listed.

2. The bill lands in the following year's assessment. Sell in September 2026 and the CGT is assessed in your 2026–27 return, typically lodged and payable well into 2027. Set the money aside at settlement — the ATO may also increase your PAYG instalments afterwards.

3. Keep records for five years after the CGT event. That means purchase contracts, settlement statements, renovation invoices and rates notices need to survive five years past the sale, not five years past the expense. For a property held 15 years, that's a 20-year paper trail.

If you're still holding and want to model the ongoing tax position before you decide, the negative gearing calculator and our guide to negative gearing in Australia cover the deduction side of the equation.

What's changing from 1 July 2027? {#budget-changes}

The May 2026 Federal Budget announced that the flat 50% CGT discount for individuals will be replaced from 1 July 2027 with an inflation-indexed cost base system, alongside a 30% minimum tax rate on capital gains. These are announced measures, not yet law.

Replacement of the 50% CGT discount

Instead of halving the gain, investors will index the original purchase price and cost base items for inflation before calculating the gain.

Whether that helps or hurts depends on holding period and inflation. A property held 20 years through a high-inflation stretch may do better under indexation than under a flat 50% discount. A property sold 13 months after purchase almost certainly won't — there's barely any inflation to index against.

Transitional rules (grandfathering)

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

In practice this means a valuation or apportionment exercise at the 1 July 2027 line for anything bought before Budget night — another reason to keep documentation tidy.

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.

Because these changes are proposed rather than enacted, treat any pre-2027 sale decision as a live planning question. The William Buck Federal Budget 2026 analysis and the Australian Treasury Budget website track the legislation timeline.

How can you legally reduce CGT on an investment property? {#minimise-cgt}

The legitimate levers are holding past 12 months, maximising the cost base, offsetting capital losses, timing the contract date into a low-income year, applying the main residence exemption, and choosing the right ownership structure at purchase. In rough order of impact:

1. Hold for at least 12 months. Worth $90,000 on the $400,000 gain modelled above. Nothing else comes close.

2. Maximise your cost base. Every dollar added reduces the gain. Stamp duty, capital improvements, conveyancing, agent commission, marketing — and remember to subtract any capital works deductions you claimed.

3. Offset with capital losses. Losses on shares, ETFs, crypto or another property offset the gain in the same year. Apply losses before the 50% discount — the ATO's ordering rules mean a $50,000 loss reduces the raw gain, not the halved one, so it's worth more than it looks. Unused losses carry forward indefinitely.

4. Time the contract date for a low-income year. Parental leave, a gap between contracts, the first year of retirement — deferring exchange past 1 July can move the gain into a year with far more room in the lower brackets. Exchange, not settlement.

5. Check the main residence exemption. If the property was ever your home, the partial exemption or the 6-year absence rule may wipe out a large slice of the gain.

6. Get the ownership structure right at purchase. Joint ownership splits the gain across two sets of brackets; an SMSF caps the effective rate at 10% on discounted gains. Neither can be retrofitted cheaply — changing title later is its own CGT event.

7. Consider concessional super contributions. A deductible personal contribution in the year of sale reduces taxable income, which can pull part of the gain out of the top bracket. Contribution caps apply — this one genuinely needs an accountant.

Before you sell, it's also worth checking what the sale itself will cost you: our guides to property selling costs in Australia and rental yield cover the numbers that sit either side of the CGT calculation.

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, capital improvements 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 apply the 50% CGT discount first, halving the taxable gain before it hits your return. On a $400,000 gain for someone earning $100,000, that works out to about $80,350 in CGT for the 2026–27 year. You can run the numbers for your own property with Leadkit's accounting and tax calculators.

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

A: No — if the property was your principal place of residence 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 absence rule may also let you treat a former home as your main residence for up to six years after moving out, provided you don't nominate another property as your PPOR over the same period.

Q: Do I need an ATO clearance certificate to sell my investment property?

A: Yes, in practice. Since 1 January 2025, purchasers must withhold 15% of the sale price at settlement on every Australian property sale regardless of value, and remit it to the ATO — unless the vendor provides a valid clearance certificate confirming Australian residency. There's no price threshold anymore, so this now applies to a $400,000 unit as much as a $4 million house. Certificates are free, usually issued within a few days, and valid for 12 months, but the ATO allows up to 28 days. Apply as soon as the property is listed; leaving it until the week of settlement is how sellers end up waiting months for a refund.

Q: How is CGT calculated on a jointly owned investment property?

A: Each owner reports their share of the gain in their own tax return, split according to their legal interest on the title — usually 50-50 for joint tenants. Each owner applies the 50% discount and their own marginal rate separately. On a $400,000 gain where both owners earn $100,000, joint ownership costs about $70,700 in total CGT versus $80,350 for a sole owner, because neither half is fully exposed to the top bracket. You can't choose the split at sale time — the ATO uses legal ownership, and changing the proportions later is itself a CGT event that usually triggers stamp duty.

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

A: The 50% CGT discount lets Australian resident individuals and trusts reduce a capital gain by half before it's included in taxable income, on assets held at least 12 months. Companies don't qualify at all. SMSFs get a reduced 33.3% discount, which produces an effective 10% rate in accumulation phase. For an individual on the top marginal rate, the discount caps tax on a long-held property gain at 22.5%, or 23.5% with the Medicare levy. The discount applies under current law; from 1 July 2027 it's slated to be replaced by an inflation-indexed cost base system.

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 ends, building and pest inspection costs, loan establishment and discharge fees, the selling agent's commission, marketing costs, and capital improvements such as structural renovations, extensions and new kitchens or bathrooms. Routine repairs and maintenance aren't included — those are annual deductions. Holding costs like interest and council rates only count if you didn't claim them as deductions. Importantly, any capital works deductions you claimed at 2.5% a year come off the cost base. Keep every receipt: a $50,000 capital improvement can save $10,000–$22,500 in tax.

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

A: CGT is triggered at the contract date (exchange), not settlement. Sign contracts on 28 June 2026 and settle on 15 August 2026, and the gain is assessed in the 2025–26 financial year, not 2026–27. This matters twice over: for shifting a gain into a lower-income year, and for the 12-month holding period, which is measured contract-to-contract. If you want the CGT event in the next financial year, you need to exchange after 1 July — settling after that date isn't enough.

Q: How long do I need to keep records for CGT?

A: Keep every record relevant to the property for at least five years after the CGT event — not five years after the expense. For a property held 15 years, that's an effective 20-year paper trail covering the purchase contract, settlement statements, stamp duty receipts, renovation invoices, rates and land tax notices, depreciation schedules and the sale contract. If you're carrying forward a capital loss, keep the records until five years after the year you finally use it. The ATO can disallow cost base items you can't substantiate, and an unsubstantiated $50,000 renovation is a $50,000 larger taxable gain.

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

A: No — Australia has no like-for-like rollover for investment properties the way the US 1031 exchange works. Selling one property and buying another doesn't defer or reduce the CGT. The only deferrals available are specific small business rollover provisions, which don't apply to residential investment property. The realistic levers are maximising the cost base, crossing the 12-month threshold, offsetting capital losses, timing the contract date for a low-income year, and applying the main residence exemption where it genuinely applies.

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

A: If the sale price is below your reduced cost base, you have a capital loss rather than a gain. Capital losses can't be offset against ordinary income like wages or rent — only against capital gains, either in the same year or carried forward indefinitely. There's no 50% discount on losses: the full amount is available. Because losses are applied before the discount, a $50,000 loss offsets $50,000 of the raw gain, which is worth more than offsetting $50,000 of an already-halved gain. If you're sitting on losses from shares or another property, selling them in the same financial year as a property gain is one of the cleaner ways to cut the bill.

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, plus a 30% minimum tax rate on capital gains. Properties owned before Budget night — 7:30 pm AEST on 12 May 2026 — fall under transitional rules, so gains accrued up to 1 July 2027 keep the existing 50% discount treatment and only later gains are taxed under the new regime. Investors in new residential builds can choose between the two regimes. None of this is law yet, so talk to your accountant about your specific position before you sell.

Final tips before you sell

CGT on an investment property is one of the largest single tax events most Australians will face. The decisions that move the number are made in the months before exchange, not after settlement.

The non-negotiables: confirm your contract dates put you past 12 months, compile the complete cost base with receipts, subtract any capital works deductions you've claimed, apply for your ATO clearance certificate as soon as you list, and check whether any main residence exemption applies.

Then consider timing. If your income next financial year will be materially lower, deferring exchange by a few weeks across 30 June can be worth more than every other lever combined. And for anything acquired before 12 May 2026, work out how the transitional rules interact with your intended sale date.

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, ownership structure and income for an instant estimate. Results are an indication only; your accountant confirms the final position.

Explore the full suite of investment property calculators on Leadkit for tools covering yield, capital 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 own CGT and income tax calculators, which apply the 2026–27 ATO resident marginal rates and current 50% CGT discount rules. Cost base inclusions follow ATO guidelines. Figures exclude the 2% Medicare levy unless stated. These are Leadkit's tools rather than neutral third-party data, and the scenarios are deliberately simplified — 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.