Capital Gains Tax on Property: The Complete 2026 Guide

Capital gains tax (CGT) is one of the most significant costs investors face when selling property — but it's also one of the most misunderstood. Understanding how CGT works, and when the 50% discount applies, can save you tens of thousands of dollars on your next sale.

What Is Capital Gains Tax?

When you sell an investment property for more than you paid for it, the profit (capital gain) is added to your taxable income in the year of sale and taxed at your marginal tax rate. CGT is not a separate tax — it's income tax applied to your capital gain.

Your capital gain is calculated as: Sale price minus cost base. The cost base includes your original purchase price, stamp duty, legal fees, purchase costs, and any capital improvements made during ownership.

The 50% CGT Discount

If you've owned the property for more than 12 months, you qualify for the 50% CGT discount — meaning you only include half of your capital gain in your taxable income. This is one of the most significant tax benefits available to Australian property investors.

Example: You sell an investment property for a $200,000 capital gain after 3 years of ownership. With the 50% discount, only $100,000 is added to your taxable income. If you're on a 37% marginal rate, your actual CGT bill is $37,000 — not $74,000.

The Main Residence Exemption

Your primary home (principal place of residence) is generally exempt from CGT. If you've lived in a property as your main residence for the entire period of ownership, there's no CGT on sale.

This creates a useful strategy: if you've been renting a property out but previously lived in it as your main residence, you may be able to claim a partial or full exemption depending on the ownership timeline.

The 6-Year Rule

One of the most powerful CGT strategies for investors is the 6-year absence rule. If you move out of your principal place of residence and rent it out, you can continue to treat it as your main residence for up to 6 years — meaning no CGT applies on sale even if it was rented during that period.

This rule requires that you don't claim another property as your main residence during the same period, and it resets each time you move back in.

CGT and the Timing of Sale

Because CGT is added to your income in the year of sale, timing matters. Selling in a year when your other income is lower — for example, the year you stop working or take parental leave — can reduce the tax rate applied to your gain. Conversely, selling when you've had a high-income year compounds the tax bill.

Strategies to Minimise CGT

• Hold for 12+ months to access the 50% discount
• Time the sale to coincide with a lower-income year
• Maximise your cost base by keeping records of all capital improvements
• Use the 6-year rule if the property was ever your main residence
• Consider ownership structure — trusts and SMSFs have different CGT treatment

Proposed Changes to CGT in 2026

There have been ongoing discussions in Australia about reforming the CGT discount — including proposals to reduce it from 50% to 25% for new purchases. As of the time of writing, no changes have been legislated. We recommend speaking with your accountant to stay current on any proposed reforms that may affect your investment decisions.

Getting Specialist Advice

CGT strategy should be part of your property plan from day one — not an afterthought when you're about to sell. The right ownership structure, acquisition timing, and holding strategy can make a significant difference to your after-tax outcome. Our team can refer you to specialist property tax accountants who work with property investors regularly.