Selling an investment property usually means a capital gain, and the tax on it depends on numbers most people only gather at the last minute: the purchase costs from years ago, the deductions they have already claimed, and the date the sale contract was signed.
This guide walks through the ATO’s step-by-step method for 2025-26 and 2026-27 sales, covering the cost base, the 50% discount, capital losses and partial main residence exemptions, with a fully worked example at 2026-27 tax rates. Each rule was checked against the ATO’s capital gains tax pages on 9 October 2026.
It is written for individual investors who have sold, or are about to sell, a rental property or former home. For ways to reduce the gain before you sell, see our guide on how to avoid capital gains tax on property.
Key takeaways
- Capital gain = capital proceeds minus cost base. The net gain is added to your taxable income, so it is taxed at your marginal rate.
- For property, the CGT event happens on the contract date, not settlement.
- Australian resident individuals and trusts get a 50% discount on assets held at least 12 months; companies get none. From 1 July 2027 an inflation-based discount applies to newly accrued gains.
- Capital losses are applied before the discount and can never reduce salary or rent.
- Capital works deductions claimed on property bought after 13 May 1997 reduce your cost base.
- A former home can stay exempt for up to 6 years while rented, if you do not treat another home as your main residence.
CGT calculation steps at a glance
| Step | What you do | ATO rule to watch |
|---|---|---|
| 1. Capital proceeds | Sale price under the contract | Market value applies to gifts or non-arm’s length sales |
| 2. Cost base | Purchase price plus costs to buy, hold, improve and sell | Exclude anything you claimed as a deduction |
| 3. Gross gain or loss | Proceeds minus cost base | Use the reduced cost base for a loss |
| 4. Exemptions | Main residence, full or partial | 6-year absence rule; foreign resident exclusion |
| 5. Capital losses | Current-year losses, then prior-year losses | Apply to non-discountable gains first |
| 6. Discount | 50% for individuals and trusts after 12 months | Not for companies; partial for foreign residents |
| 7. Report | Net capital gain at item 18 label A | Taxed at your marginal rate |
Source: ATO how to calculate your CGT, CGT discount and capital losses, checked 9 October 2026.
What is capital gains tax on property?
CGT is not a separate tax. A net capital gain is added to your assessable income and taxed at your marginal rate, plus the Medicare levy. That is why a large gain can push part of your income into a higher bracket in the year of sale.
A CGT event happens when you sell or otherwise dispose of a property. For property, the ATO says the gain happens on the date of the sale contract, not settlement. A contract signed on 25 June 2027 belongs in your 2026-27 return even if it settles in August.
What goes into the cost base?
The ATO’s cost base page lists five elements. For property they work like this:
| Element | Property examples |
|---|---|
| 1. Money paid | Purchase price |
| 2. Incidental costs to buy and sell | Stamp duty, conveyancing and legal fees, valuer, surveyor and agent fees, title searches |
| 3. Costs of owning | Rates, land tax, insurance, repairs and interest, but only if not deductible (for example on vacant land) and only for property bought after 20 August 1991 |
| 4. Capital costs to increase or preserve value | Renovations, extensions and similar capital improvements |
| 5. Costs to preserve or defend title | Capital legal costs to defend your ownership |
The key exclusion: you cannot include any cost you could claim as a tax deduction. For property acquired after 13 May 1997, capital works deductions you have claimed reduce the cost base, according to the ATO’s cost base adjustments for capital works page. See the ATO’s capital works deductions guidance and our capital works deduction guide for how those deductions build up.
How does the 50% CGT discount work?
Australian resident individuals and trusts can reduce an eligible gain by 50% if they owned the property for at least 12 months. The ATO counts the time between acquisition and the CGT event, excluding both of those days. Complying super funds get a one-third discount, and companies get no discount.
Foreign and temporary residents cannot use the full discount for gains made after 8 May 2012, though a partial discount may apply for periods of Australian residency. Since 1 January 2025, the ATO’s Rental properties guide 2026 notes, foreign resident capital gains withholding is 15% with no threshold.
What changes to the CGT discount from 1 July 2027?
The 2026-27 Budget changed the discount for future gains, and the ATO’s new legislation page says the measures are now law under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. For capital gains that accrue from 1 July 2027, the 50% discount for individuals, trusts and partnerships is replaced with a discount based on inflation and a minimum 30% tax rate on capital gains.
Gains that accrued before 1 July 2027 on existing investments keep access to the 50% discount, and investors in new builds can choose the 50% discount or the new method, according to Treasury. Sales in 2025-26 and 2026-27 still use the current rules shown below. The same Act limits negative gearing; see our negative gearing guide.
How do capital losses reduce the gain?
Capital losses only reduce capital gains. Under the ATO’s capital losses rules:
- Current-year capital losses are applied first, then prior-year net capital losses in the order you made them.
- Losses are applied before the 50% discount.
- Apply losses to gains that do not get the discount first, as this gives the lowest tax.
- An unused net capital loss carries forward with no time limit, but it can never be deducted from salary or rent.
What if the property was once your home?
A home that was your main residence for the whole time you owned it, and never used to earn income, is generally exempt. Once it is rented, the position depends on the order of events:
- Absence rule: under the ATO’s former home rules, you can choose to treat it as your main residence for up to 6 years while it is rented (or indefinitely if it is not used to produce income), as long as you do not treat another property as your main residence, apart from up to 6 months when moving.
- Home first used to produce income: if you lived in it first and rented it out after 20 August 1996, and only a partial exemption applies, the cost base is reset to market value when you first rented it. You need a valuation at that date.
- Rental that later became your home: the ATO formula is capital gain x days used to produce income / total days owned, based on contract dates. See the ATO page on using your home for rental or business.
- Foreign residents: if you are a foreign resident when the CGT event happens, you generally cannot claim the main residence exemption on Australian residential property.
Worked example: selling a rental in 2026-27
Ravi signed a contract to buy an investment unit in 2019 for $600,000, paying $31,000 stamp duty and $1,500 conveyancing. He later spent $40,000 on a new kitchen and bathroom. Over the years he claimed $12,000 of capital works deductions on the building and renovation.
He signs a sale contract on 15 August 2026 for $900,000, paying $18,000 agent commission and $1,500 legal fees. He has a $10,000 capital loss carried forward from shares.
Cost base: $600,000 + $31,000 + $1,500 + $40,000 + $18,000 + $1,500 – $12,000 = $680,000.
Capital gain: $900,000 – $680,000 = $220,000. Less carried-forward loss: $220,000 – $10,000 = $210,000. Less 50% discount: $210,000 x 50% = $105,000 net capital gain.
His other taxable income for 2026-27 is $95,000, so his taxable income becomes $200,000. Under the 2026-27 resident tax rates: tax on $95,000 = $4,020 + 30% x $50,000 = $19,020. Tax on $200,000 = $51,370 + 45% x $10,000 = $55,870.
Extra income tax from the sale: $55,870 – $19,020 = $36,850, plus Medicare levy of 2% x $105,000 = $2,100. Total: $38,950, about 17.7% of the $220,000 gain.
Rule of thumb: Before you sign a sale contract, gather the purchase contract, settlement statement, every capital improvement invoice and the total capital works deductions you have claimed. Without those four, any CGT estimate is a guess.
Common mistakes when calculating CGT on property
- Using the settlement date. The contract date decides the income year and the 12-month test.
- Leaving out purchase and sale costs. Stamp duty, conveyancing and agent commission all add to the cost base.
- Not reducing the cost base for capital works deductions. This understates the gain.
- Applying the discount before losses. Losses come off first, then the discount.
- Assuming the 6-year rule always applies. It fails if you treat another property as your main residence, and generally if you are a foreign resident when you sell.
FAQ about calculating capital gains tax on property
When does CGT apply to a property sale: contract or settlement?
For property, the CGT event generally happens on the date you sign the sale contract, not at settlement. The ATO’s example is a contract exchanged on 4 June 2026 and settled on 6 July 2026, where the gain belongs in the 2025-26 return. This date also decides whether you have held the property for the 12 months needed for the discount.
Can a capital loss reduce my salary income?
No. A capital loss can only reduce capital gains, never salary, rent or other income. If your capital losses are larger than your gains for the year, the net capital loss is carried forward with no time limit and used against future gains. Losses are applied before the 50% discount, and against non-discountable gains first for the lowest tax.
Do capital works deductions affect my CGT?
Yes. For property acquired after 13 May 1997, capital works deductions you have claimed reduce the cost base, so they increase the capital gain when you sell. For example, $30,000 of building work on which you claimed $12,000 in deductions adds only $18,000 to your cost base. Keep your depreciation schedule and prior returns for this reason.
Do foreign residents get the CGT discount?
Not in full. Foreign and temporary residents cannot use the full 50% discount for gains made after 8 May 2012, although a partial discount may apply for periods they were Australian residents. A person who is a foreign resident when the property is sold generally cannot claim the main residence exemption, and the buyer generally withholds 15% of the purchase price under foreign resident capital gains withholding.
Do companies and trusts get the 50% discount?
Companies get no CGT discount. Australian trusts can access the 50% discount on assets held for at least 12 months, and it generally flows through to individual beneficiaries. Complying super funds receive a one-third discount. Structure has a large effect on the tax on a property sale, so it is worth modelling before you buy rather than when you sell.
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Nanak Accountants can rebuild your cost base from old records, check main residence and absence rule choices, and model the tax before you sign a sale contract. See our capital gains tax service and rental property tax return service, read our rental property deductions guide and negative gearing guide, call 1300 626 258 or contact us. Our offices are listed on the Nanak Accountants home page.
This article is general information only and is not personal tax or legal advice. Figures and rules were checked against the ATO pages on capital gains tax, how to calculate your CGT, cost base, cost base adjustments for capital works, CGT discount, capital losses, treating a former home as your main residence and using your home for rental or business, the Rental properties guide 2026 and ATO resident tax rates on 9 October 2026. Rates and thresholds change, so confirm the current position before acting.
