Capital Gains Tax on Investment Property in Australia: The Complete 2026 Guide

Updated July 2026 following the enacted CGT reforms. Legislation last checked 10 July 2026 against the ATO's published guidance and the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. This is general information, not personal tax advice — CGT outcomes turn on dates, records, ownership structure and residency, so confirm your position with a registered tax agent before acting.

Quick Answers

What CGT Is — and What “CGT Event A1” Means

Capital gains tax entered Australian law on 20 September 1985, and it isn't a standalone tax with its own rate. When you sell, the net capital gain lands in your assessable income for that year and is taxed at your marginal rate, plus the 2% Medicare levy for most resident individuals. Property acquired before 20 September 1985 sits outside the CGT net entirely (though major post-1985 improvements can be treated as separate assets).

What is CGT event A1?

CGT event A1 is the ATO's label for the disposal of a CGT asset — the standard event when you sell a property. Its timing rule does a lot of work: the event happens when you enter into the contract of sale (exchange), not at settlement. Sign on 20 June and settle on 5 August, and the gain belongs to the financial year that ended 30 June. Every timing strategy in this guide — including anything involving 1 July 2027 — runs off the contract date, so we'll say it once here and refer back: the contract date picks the year and the rules.

• The 12-month rule. Hold for more than 12 months (contract date to contract date) and individuals currently qualify for the 50% discount. For off-the-plan purchases the holding period generally runs from the purchase contract date, but off-the-plan arrangements vary in legal form — confirm your specific contract with your adviser before relying on it.
• Capital proceeds adjustments. Proceeds are usually the sale price, but the market value substitution rule applies to non-arm's-length deals (selling to family below market means you're taxed as if you received market value), and compensation, insurance payouts or forfeited deposits can also count as proceeds (ATO: Capital proceeds).

How to Calculate CGT: The Six Steps

1. Work out capital proceeds — usually the contract price.
2. Work out the cost base — see the next section; it's much more than the purchase price.
3. Subtract — a positive result is a capital gain; below the (reduced) cost base is a capital loss.
4. Apply capital losses — current-year and carried-forward losses come off before the discount. You choose which gains absorb them; pointing losses at non-discountable gains first is usually better.
5. Apply the discount — 50% for individuals (current law), one-third for complying super funds, nil for companies.
6. Add the result to assessable income for the contract year.

Worked example — the whole calculation

Sarah bought an established Brisbane unit in September 2018 and signed a contract to sell in May 2026. Top marginal rate (47% including Medicare levy), with a $15,000 carried-forward share loss.

The year-of-sale bracket effect

Because the net gain stacks on your other income, the same gain costs different amounts in different years. The years that reliably create the cheapest outcome: retirement or semi-retirement, parental leave, a sabbatical, a business-loss year, or a year with unusually large deductions. Timing the contract into one of them is worth more than most packaged “CGT minimisation” products. From 1 July 2027 the 30% minimum on indexed gains compresses (but doesn't eliminate) this lever for post-change gain layers — one of the few genuine reasons to consider acting before then.

The Cost Base: Five Elements Most Investors Under-Claim

Can You Estimate CGT Before Selling?

To calculate capital gains tax before you list, assemble this worksheet — it's also most of what your accountant needs for a formal estimate:

An accountant's estimate from these inputs is normally within a few thousand dollars of the final figure; the final calculation happens at return time when the contract date, actual price and full-year income are known. The gap between estimate and final is usually driven by forgotten cost-base items — a reason to build the worksheet early, not to skip the estimate.

Who Pays What: CGT by Ownership Structure

Trusts: discount flows through, losses don't

A discretionary trust doesn't pay CGT itself in the usual case — it distributes the gain to beneficiaries, who apply the 50% discount at their own marginal rates. Trust deeds that permit streaming let trustees direct capital gains to specific beneficiaries (say, the low-income spouse) separately from rental income, which is the structure's main CGT advantage. The limits: capital losses are trapped inside the trust (they can't be distributed, only offset against the trust's own future gains), distributions to company beneficiaries forfeit the discount on that share, and family trust elections can constrain who may receive distributions tax-effectively. From 1 July 2027 trusts lose exactly what individuals lose — there is no routing around the change through a family trust. Full structure comparison: buying property in a trust vs personal name.

Companies: flat rate, no discount, and a second layer of tax

Companies pay a flat 25–30% on gains with no discount and no indexation, and getting the after-tax profit out to shareholders means franked dividends taxed again at personal rates (with credits). For long-hold growth property, that double structure has historically been the least efficient of the major vehicles — the reform narrows the gap for post-2027 gains, but the dividend layer and the loss of any main-residence or indexation concessions still make companies a special-purpose choice (development, asset protection at scale) rather than a default.

Joint ownership: the split is set at purchase

CGT follows legal ownership. Joint tenants are treated as equal 50/50 owners; tenants in common are taxed per their registered percentages (75/25 means the gain splits 75/25). Each owner runs their own six-step calculation — their own losses, their own bracket, their own discount eligibility. Weighting ownership toward the lower-income spouse permanently changes the rate applied to their share, but you can't re-split at sale time without a dutiable, CGT-triggering transfer. Choose the split before you buy.

Foreign and temporary residents

Foreign and temporary tax residents receive no CGT discount on gains accrued after 8 May 2012 (apportionment applies to assets held across that date and across residency changes), and foreign residents at the time of sale are generally denied the main residence exemption entirely, subject to narrow “life events” exceptions within six years of becoming a foreign resident. Expats planning to sell should line up the contract date with their residency status — selling a former Australian home while non-resident is one of the costliest avoidable CGT mistakes.

The Main Residence Exemption and the Six-Year Rule

The full exemption applies when the dwelling was your main residence for the whole ownership period, wasn't used to produce income, and sits on two hectares or less. You can have only one main residence at a time (a six-month overlap is allowed when buying your next home before selling the last). The interesting cases are properties that change roles:

The six-year rule. Move out and rent your former home, and section 118-145 lets you keep treating it as your main residence for up to six years per absence — indefinitely if it isn't rented. Move back in genuinely, move out again, and a fresh six years begins. While you claim it, nothing else can be your main residence.

The market-value reset. When a home first becomes income-producing, you're generally deemed to have acquired it at market value on that day (ATO: home first used to produce income rule). All growth while you lived in it is washed out of the calculation. Get a valuation the week you move out — a few hundred dollars of paper can anchor hundreds of thousands of exempt gain.

Partial exemption — worked example. Where the exemption covers only part of the ownership, the gain apportions by days. Priya bought a home in July 2016, lived in it four years, then rented it out for eight years (two years past the six-year rule) before selling. Market value at move-out (July 2020): $800,000; sale (July 2028): $1,100,000 — a $300,000 gain measured from the reset base over 2,922 rental days. The six-year rule exempts the first 2,191 days; the remaining 731 days are taxable: $300,000 × (731 ÷ 2,922) ≈ $75,000, with discount treatment on the pre-2027 accrual share, taxed at her marginal rate. Sold within the six years instead, her bill is zero.

Investment property vs PPOR vs holiday home

Inherited Property, Divorce and Other Rollovers

Inherited property

• Deceased acquired pre-20 September 1985: you're deemed to acquire at market value at date of death — the deceased's lifetime growth is never taxed.
• Deceased acquired post-1985: you inherit their original cost base and acquisition date; the embedded gain becomes yours.
• The two-year rule: if the property was the deceased's main residence (and not then income-producing), a sale contracted within two years of death is fully exempt — whether the executor sells during administration or a beneficiary sells after transfer, the exemption and the two-year clock work the same. Don't let probate delays eat the window without asking the ATO for an extension (routinely granted for delays outside your control). Past two years, the exemption apportions.
• Practical move: obtain a date-of-death valuation immediately, even with no plan to sell — it's either your cost base or the anchor for apportionment later.

Divorce and property settlements

Transfers under a court order or binding financial agreement attract the relationship-breakdown rollover: no CGT at transfer, with the receiving spouse taking the original cost base and acquisition date. The negotiation trap: the recipient inherits the full embedded gain, so $500,000 of equity in a high-cost-base property is worth more after tax than $500,000 in a low-cost-base one. Price the latent CGT into the settlement, not after it.

How the CGT Discount Is Changing From 1 July 2027

• What's replaced: the 50% discount for individuals, trusts and partnerships. In its place, the cost base is indexed to CPI (you're taxed only on gains above inflation) and the net gain is taxed at no less than 30% — top-rate taxpayers still pay their marginal rate; the floor bites where the marginal rate would otherwise be lower.
• The transition: gains accrued to 30 June 2027 retain the 50% discount when you eventually sell; only growth from 1 July 2027 is taxed under the new method. Your future sale effectively splits into a pre-change layer (old rules) and post-change layer (new rules). This is why panic-selling to “beat the deadline” misreads the law — the accrued gain is already protected.
• The new-build carve-out: eligible new dwellings (off-the-plan apartments, construction on previously vacant land) keep full concessions — those investors get a choice at disposal between the 50% discount and the new indexation regime, whichever computes better. Established homes with renovations, and knock-down single-for-single rebuilds, don't qualify.
• What's untouched: super funds (one-third discount stays), companies (never had the discount), the main residence exemption, and the six-year rule.
• Don't confuse the two grandfathering lines: negative gearing is grandfathered by holding (established dwellings acquired after 7:30pm AEST on 12 May 2026 face loss-quarantining from 1 July 2027; earlier purchases keep full negative gearing until sale — see the negative gearing guide). The CGT change applies to everyone's future gains; what's protected isn't the asset, it's the growth already banked.

Positions, briefly. The Government frames the package as redirecting concessions from bidding up established homes toward building new ones. Industry bodies (Property Council, REIA, HIA) argue added complexity, dampened investor demand during a downturn, and doubt the carve-out fully replaces lost established-stock investment. Our analysis, from the evidence: the transition removes most of the rational case for pre-deadline selling; what genuinely changes is the forward return calculation on established property held personally — and the relative appeal of new builds, super structures and, for lower-rate taxpayers, the effect of the 30% floor. The full reform timeline sits in our 1 July 2026 new-financial-year guide.

Old rules vs new: the maths that decides it

Whether indexation-plus-minimum-30% costs more than the 50% discount depends mostly on how far growth outruns inflation. Under the discount, half the nominal gain is taxed; under the new method, the full real gain is taxed at ≥30%.

The asymmetry is the signal: the new method costs more in growth markets and less in low-growth, high-yield ones — a quiet re-pricing pressure toward new builds (which keep the choice of discount) and income-led established property.

Should You Sell Before 1 July 2027?

Also weigh the market: Sydney and Melbourne prices fell through the June quarter with clearance rates below 50% (Cotality June 2026 analysis). Crystallising a soft price to avoid tax on growth that hasn't happened yet inverts the logic — and a rushed sale that gives up 3% on price has usually spent more than it saved. Equity release via refinance is the standard no-CGT alternative (refinancing guide); the broader framework is in our exit strategy guide.

Eight Legitimate Ways to Reduce CGT

1. Hold for more than 12 months — the bluntest lever under current law, and indexation accrues with time after 2027 regardless.
2. Time the contract date into a low-income year (see the bracket chart above). The gain lands in the year you sign.
3. Harvest capital losses — shares and crypto included. Losses on any CGT asset offset property gains dollar-for-dollar before the discount, and unused losses carry forward indefinitely — they'll offset post-2027 indexed gains too. Manufacturing losses by selling and immediately repurchasing (“wash sales”) attracts ATO attention under Part IVA.
4. Make a deductible super contribution in the sale year. The concessional cap is $32,500 for FY2026-27, and carry-forward rules can allow far more for balances under $500,000 — absorbing gain at a 15% contributions-tax cost instead of your marginal rate. Worked numbers in the 1 July 2026 guide.
5. Maximise the cost base — every element-2 and element-4 dollar, and element 3 for holiday homes and vacant periods. The constraint is records.
6. Use the main residence exemption deliberately — the six-year rule and market-value reset are the difference between six figures and zero on former homes.
7. Set the ownership split before you buy — joint tenants vs tenants in common percentages permanently allocate the future gain.
8. Choose the vehicle for the next asset with 2027 in view — super's CGT treatment survived untouched; new builds keep concessions with a method choice at sale (new-build vs established modelling).

CGT Inside an SMSF

The comparison worth restating: a top-rate individual selling a post-2027 growth layer faces up to 47% on the real gain; the same gain inside an SMSF faces 10% in accumulation or ~0% in retirement phase (within the $2.1 million transfer balance cap). Two current-law wrinkles: Division 296 (from 1 July 2026) adds 15% on realised earnings attributable to total super balances above $3 million — so the year a large fund sells a property now interacts with the surcharge — and the residential LRBA ban commences ~10 August 2026, closing new borrowed residential purchases (existing loans and business real property LRBAs continue; contracts exchanged before commencement are grandfathered).

Contribution caps, preservation, liquidity and the sole purpose test are the price of admission — structural advice territory, not a tax hack. See the LRBA ban guide, the SMSF property tax guide, and our SMSF property investment service.

Subdivision, Granny Flats and the Revenue-vs-Capital Trap

The ATO weighs intention at purchase, scale and repetition, financing structure, and how quickly you sold after completing works. Practical markers:

• One-lot subdivision of a long-held rental: typically capital account; the new lot takes an apportioned share of the original land cost base, the house keeps its own.
• Duplex or multi-unit build-to-sell: usually revenue account plus GST as new residential premises — no discount, no indexation.
• Granny flat additions: the build cost is element-4 cost base, and formal granny-flat arrangements for family members have a specific CGT exemption for the arrangement itself — but renting the flat commercially creates income-producing use with apportionment consequences for an otherwise exempt home (granny flat guide).
• Changing plans mid-hold (from keep-and-rent to develop-and-sell) can itself shift future profit to revenue account — get advice before the development application. The post-2027 new-build concessions help buyers of new stock, not builders' revenue profits.

Selling Mechanics: Withholding, Payment and Records

• Foreign resident capital gains withholding: since 1 January 2025, 15% of the price is withheld at settlement on every Australian property sale — no threshold — unless the vendor produces an ATO clearance certificate proving residency. Free, valid 12 months, usually issued within days: apply when you list, not at settlement.
• Reporting and payment: the gain goes in the return for the contract year; tax is due at assessment. A large gain typically triggers PAYG instalments the following year — the ATO pre-collecting tax it assumes will recur. Vary the instalments if the gain was one-off.
• Records: keep purchase contracts, settlement statements, every cost-base invoice, depreciation schedules, valuations at use-changes and loan records for at least five years after the disposal year. A scanned folder per property is the cheapest tax insurance available.

Documents your accountant will need

Purchase contract and settlement statement · stamp duty receipt · legal invoices (both ends) · buyer's agent invoice · improvement invoices with dates · quantity surveyor depreciation schedule and claim history · valuation at any home↔rental change · rental start/end dates · sale contract, agent and marketing invoices · your carried-forward loss history · super contribution caps position for the sale year.

Common Mistakes

1. Reporting by settlement date instead of contract date — wrong-year assessments and interest charges.
2. Ignoring the Division 43 cost-base clawback (the ATO data-matches depreciation claims).
3. Applying the discount before losses.
4. Losing element-2 and element-4 receipts — typically tax on an extra $30,000–$60,000 of gain.
5. No valuation when a home becomes a rental — the market-value reset is lost to less favourable apportionment.
6. Selling as a foreign tax resident — forfeiting the main residence exemption and discount pro-rata.
7. Letting the tax tail wag the investment dog — paying 4–6% round-trip costs to avoid a smaller, later, uncertain tax difference.

Frequently Asked Questions

Sources & Review Note

• Australian Taxation Office — CGT and property; Cost base of a CGT asset; Treating a former home as your main residence; Foreign resident capital gains withholding; Deceased estates and CGT; Tax reform: negative gearing and capital gains tax (new-legislation page)
• Federal Register of Legislation — Treasury Laws Amendment (Tax Reform No. 1) Act 2026
• Australian Government Budget 2026 — Negative Gearing and Capital Gains Tax Reform factsheet
• Baker McKenzie and William Buck — Federal Budget 2026 analyses
• Cotality — Home Value Index, June 2026

Prepared by the Property Investment Professionals research team and checked against ATO published guidance and the enacted legislation as at 10 July 2026. Worked examples are illustrative, use FY2026-27 resident rates (top marginal 45% + 2% Medicare levy), and ignore offsets and state taxes except where stated; the enacted indexation methodology and rate-interaction detail will be refined in ATO guidance through FY2026-27.