Selling a property for more than you paid can leave you with a large capital gains tax (CGT) bill. The good news is that the tax law has several exemptions and concessions that can shrink that bill, and in the case of your own home, often remove it completely.
This guide explains the legal ways to reduce CGT on property for the 2025-26 and 2026-27 income years: the main residence exemption and the 6-year rule, the 50% CGT discount, building a complete cost base, timing the sale contract, using capital losses, and the rules for inherited property and foreign residents. Every rule was checked against the ATO capital gains tax pages.
It is written for home owners and property investors who are thinking about selling. If you hold rental property, our guide to negative gearing explains how the yearly deductions interact with the gain you make when you eventually sell.
Key takeaways
- Your main residence is generally fully exempt from CGT if it was your home for the whole time you owned it.
- You can rent out a former home for up to 6 years and still treat it as your main residence, if you do not claim another home.
- Australian resident individuals and trusts get a 50% discount after holding an asset for at least 12 months; complying super funds get 33.33%; companies get none.
- The CGT event happens on the date of the contract, not settlement.
- Keep property records for at least 5 years after you sell.
CGT on property at a glance
| Strategy | What the ATO rule says | Key figure |
|---|---|---|
| Main residence exemption | No CGT on your home if it was your main residence for the whole ownership period | Full exemption |
| 6-year rule | Former home can still be treated as your main residence while rented | Up to 6 years per absence |
| CGT discount | Resident individuals reduce the gain after holding at least 12 months | 50% |
| Cost base records | Purchase, holding, improvement and selling costs reduce the gain | Keep 5 years after sale |
| Capital losses | Offset against capital gains, carry forward if unused | Cannot offset salary |
| Moving house | Old and new home can both be exempt for a limited overlap | Up to 6 months |
Source: ATO CGT discount, ATO treating former home as main residence, ATO keeping records for property, ATO moving to a new main residence, checked 7 October 2026.
How is CGT on property worked out?
CGT is not a separate tax. When a CGT event happens, such as signing a contract to sell, you work out the capital gain as the capital proceeds less the cost base. Your net capital gain for the year is then added to your assessable income and taxed at your marginal rate, according to the ATO guide to calculating CGT.
Not everything is caught. The ATO list of CGT assets and exemptions shows that cars and most personal items are exempt, while investment property, shares and crypto are CGT assets. The rest of this guide focuses on property, which is where most large gains arise.
Is your home exempt from CGT?
If a dwelling was your main residence for the whole time you owned it, and it was not used to produce income, the gain is generally fully exempt. The trouble starts when the property is rented out, used for business, or when you own two homes at once.
The 6-year rule for a former home
If you move out and rent your home, you can keep treating it as your main residence for up to 6 years. If it is not used to produce income (for example it sits empty or family live there rent-free), the ATO says you can treat it as your main residence indefinitely. In both cases you cannot treat any other property as your main residence for the same period.
The 6-year limit applies separately to each absence that follows a period you lived in the home, so moving back in resets the clock. See the ATO former home rules.
Buying a new home before selling the old one
Under the ATO moving rules, both homes can be treated as your main residence for up to 6 months, as long as you lived in the old home for a continuous 3 months in the 12 months before selling it and did not rent it out during that 12 months while it was not your main residence. Go past 6 months and only one home is exempt for the earlier overlap.
Renting or running a business from your home
If part of your home earns income, only a partial exemption is available. The ATO uses the interest deductibility test: if you could claim part of the interest on a loan for the home, it is subject to CGT to the same extent.
There is also a market value rule. If you bought the home on or after 20 September 1985, first used it to produce income after 20 August 1996, and would have been fully exempt had you sold just before that, you are treated as having acquired it at its market value on that day. That is why a valuation when you first rent out your home matters. Details are on the ATO rental or business use page.
How does the 50% CGT discount work?
If you own the property for at least 12 months before the CGT event, the CGT discount cuts the gain for eligible taxpayers. The day you acquired the property and the day of the CGT event are excluded when counting the 12 months. Capital losses are applied before the discount.
| Who sells | Discount after 12 months |
|---|---|
| Australian resident individual | 50% |
| Australian trust | 50% |
| Complying super fund (including an SMSF) | 33.33% |
| Company | No discount |
| Foreign or temporary resident | No discount on gains after 8 May 2012 (apportioned if you were a resident for part of the period) |
If you are weighing up holding property through a self-managed super fund, the lower discount is only one factor. Our article on SMSF property and bare trusts covers the borrowing rules.
Which costs increase your cost base?
Every dollar in the cost base is a dollar less capital gain. The ATO property records page lists what to keep:
- Buying: purchase contract, stamp duty, legal fees, settlement statement, survey and valuation fees.
- Owning: interest, rates, land tax, insurance and repair records.
- Improving: extensions, additions and other capital improvements.
- Selling: sale contract, settlement statement, legal fees and agent commission.
Keep these for at least 5 years after you dispose of the property. If you have claimed capital works deductions, read our Division 43 capital works guide, because those deductions affect the cost base calculation.
Does the timing of the sale change your CGT?
Yes. The gain arises on the date you sign the sale contract, not at settlement. Because the net gain is added to your other income, signing in a year when your income is lower, such as after retirement or during a career break, can mean less of the gain falls into the 37% and 45% brackets on the ATO resident tax rates.
Timing also decides the 12-month test. A contract signed one week too early can cost you the whole 50% discount.
Can capital losses reduce your gain?
Capital losses from other assets, such as shares, can be offset against a property gain. You cannot deduct a net capital loss from salary or other income, but you can carry it forward to future years. Where you have gains that are not eligible for the discount, the ATO lets you apply losses to those first.
What about inherited property?
Inherited dwellings have their own rules. If the deceased acquired the property after 20 September 1985, you can generally get a full exemption by disposing of it under a contract that settles within 2 years of the death, whether or not you lived in it or rented it during that time. If the deceased acquired it before 20 September 1985, your cost base starts at the market value on the day they died. See the ATO inherited property page and cost base of inherited assets.
What changes for foreign residents?
Foreign residents cannot claim the main residence exemption for property sold after 30 June 2020 unless they satisfy the life events test: a continuous period as a foreign resident of 6 years or less, plus an event such as a terminal medical condition, death of a spouse or child under 18, or a relationship breakdown settlement. The rules are on the ATO foreign resident page. Becoming a foreign resident before you sign the contract can turn a tax-free home into a fully taxable one.
Worked example: selling an investment unit in 2026-27
Priya, an Australian resident, bought a unit in 2016 for $600,000. She paid $30,000 stamp duty and $2,000 in legal fees, and later spent $25,000 on a new kitchen. She signs a sale contract in September 2026 for $900,000 and pays $20,000 in agent and legal fees.
Cost base: $600,000 + $30,000 + $2,000 + $25,000 + $20,000 = $677,000.
Capital gain: $900,000 – $677,000 = $223,000. She applies a $13,000 capital loss carried forward from shares: $223,000 – $13,000 = $210,000.
50% discount: $210,000 x 50% = $105,000 net capital gain, added to her $80,000 salary.
Extra tax at 2026-27 rates: $55,000 x 30% = $16,500, plus $50,000 x 37% = $18,500, totalling $35,000, plus Medicare levy of $105,000 x 2% = $2,100. About $37,100 in total. Without the kitchen and selling cost records, her gain would be $45,000 higher before the discount.
Rule of thumb: If you might ever rent out your home, get a market valuation the day it first earns rent, and keep every property document until at least 5 years after you sell.
Common mistakes when trying to reduce CGT on property
- Using settlement date: the contract date decides the income year and the 12-month test.
- Claiming two main residences: outside the 6-month moving overlap, only one property can be your main residence at a time.
- Running past 6 years: renting a former home for longer than 6 years usually makes part of the gain taxable.
- Losing records: missing stamp duty, legal and improvement receipts inflate the gain.
- Moving overseas before selling: foreign residents generally lose the main residence exemption and the full discount.
For more ideas specific to rentals, see our earlier article on minimising CGT on an investment property and our list of rental property deductions.
FAQ about avoiding capital gains tax on property
Is there a legal way to avoid capital gains tax on an investment property?
Usually you cannot remove CGT entirely on a property that was always an investment, but you can reduce it. Holding it for at least 12 months gives Australian resident individuals a 50% discount, a complete cost base lowers the gain, capital losses can be offset, and signing the sale contract in a lower-income year can reduce the marginal rate that applies.
Can I rent out my old home and still pay no CGT?
Often, yes. The ATO lets you keep treating a former home as your main residence for up to 6 years while it earns rent, as long as you do not treat another property as your main residence for the same period. If the rental period runs past 6 years, a partial exemption usually applies and part of the gain is taxable.
Does the 6-year period reset if I move back in?
Yes. The ATO applies the 6-year limit separately to each period of absence that follows a period you lived in the home. If you move back in and make it your main residence again, a fresh 6-year period is available the next time you move out and rent it.
When do I report the capital gain on a property sale?
You report it in the income year you signed the sale contract, not the year settlement happens. A contract signed in June 2026 with settlement in August 2026 is reported in your 2025-26 tax return. This timing rule also decides whether you have held the property for at least 12 months.
Can a foreign resident claim the main residence exemption?
Generally not. Foreign residents cannot claim the main residence exemption for property sold after 30 June 2020 unless they pass the life events test, which requires being a foreign resident for 6 years or less and a specific event such as a terminal medical condition, death of a spouse or child, or a relationship breakdown settlement.
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CGT on property depends on dates, records and residency, and small details can change the result by tens of thousands of dollars. Nanak Accountants can review your ownership history, apply every exemption you qualify for and prepare the return. See our capital gains tax services, call 1300 626 258 or contact Nanak Accountants.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO capital gains tax pages, including the CGT discount, main residence, inherited property and foreign resident pages, and the ATO resident tax rates on 7 October 2026. Rates and thresholds change, so confirm the current position before acting.
