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

When you sell an investment property in Australia, the profit you make is a capital gain — and capital gains tax (CGT) applies to that profit. How much you pay depends on how long you held the property, what your marginal tax rate is, what deductions you can claim, and whether any exemptions apply.

This guide covers everything property investors need to know about CGT in 2026: how it is calculated, how to reduce what you pay, the key exemptions, and what the upcoming 2027 changes mean for your portfolio.

How Capital Gains Tax on Investment Property Works in Australia

CGT is not a separate tax. It is added to your assessable income for the financial year in which you sell the property, and you pay tax on it at your marginal rate. If you are in the 45% tax bracket and you make a $200,000 capital gain, the tax liability on that gain could be up to $90,000 — though there are significant ways to reduce this.

The capital gain is calculated as: sale price minus the cost base. The cost base includes the original purchase price, stamp duty, legal fees, and capital improvement costs (not ongoing maintenance). It does not include interest on loans, which is a deductible expense in the year it is paid.

The 50% CGT Discount — The Most Valuable Tool for Property Investors

If you hold an investment property for more than 12 months before selling, you qualify for the 50% CGT discount as an individual. This means only half of your capital gain is included in your assessable income.

Example: You sell an investment property and your net capital gain is $300,000. You held it for 4 years. With the 50% discount, only $150,000 is added to your taxable income. At a marginal rate of 37%, your CGT liability would be approximately $55,500 — not $111,000.

This discount is one of the most powerful tax advantages available to individual property investors in Australia. It is not available to companies. Trusts can access a modified version. This is a major reason why individual or joint ownership structures are often preferred for long-term property investment.

The 6-Year Rule: How to Avoid CGT When You Move Out

If you move out of your principal place of residence and rent it out, you can treat it as your main residence for CGT purposes for up to 6 years — as long as you do not declare another property as your main residence during that period.

This is commonly called the 6-year rule or the temporary absence rule. It means you could rent out your former home for up to 6 years and sell it completely CGT-free, provided you stay within the 6-year window. If you never move back in, you still get the CGT exemption for the period up to 6 years.

Important: If you buy another home and declare that as your main residence, the 6-year rule on the first property ends. You cannot have two main residences at the same time.

How to Minimise Capital Gains Tax on Investment Property

There are several legitimate strategies to reduce CGT when selling an investment property.

Time the sale for a low-income year. Because CGT is added to your ordinary income, selling in a year when your income is lower (career break, reduced hours, part-year earnings) means a lower effective rate on the gain.

Offset capital gains with capital losses. If you have other investments that have lost value — shares, other property — you can sell those in the same financial year to create capital losses that reduce your net capital gain. Capital losses can also be carried forward from prior years.

Hold for more than 12 months. The 50% CGT discount only applies if you have owned the property for over a year. Selling at 11 months costs you the entire discount.

Maximise your cost base. Every capital improvement you have made — new kitchen, bathroom renovation, structural work, new flooring — adds to your cost base and reduces your capital gain. Keep records of all capital works over the life of the property.

Make pre-tax contributions to super. If you are within 12 months of retirement, additional concessional super contributions reduce your taxable income, which reduces the effective rate applied to your capital gain.

CGT When Selling an Investment Property: The Step-by-Step Calculation

Step 1: Calculate your capital gain. Sale price minus cost base (purchase price + stamp duty + legal fees + capital improvements).

Step 2: Apply the 50% discount if you have held for more than 12 months. Halve the capital gain.

Step 3: Apply any capital losses from the same or prior years to the discounted gain.

Step 4: Add the net capital gain to your other income for the year.

Step 5: Calculate income tax on the total at your marginal rate. The additional tax on the capital gain component is your CGT liability.

What Changes in 2027: The CGT Discount Reform

The Australian government has announced a reduction in the individual CGT discount from 50% to 37.5% for assets sold after 1 July 2027. Properties already held before this date and sold after it will still receive the full 50% discount — grandfathering provisions apply.

For investors who own property now, this change is irrelevant for existing holdings. For properties acquired from 1 July 2027, the discount will be 37.5%. This is a modest reduction but does change the long-term return calculation for new acquisitions.

CGT and Joint Ownership

If you own an investment property jointly with another person, each owner reports their share of the capital gain separately. A 50/50 ownership structure between a high-income and lower-income earner means the lower earner's portion is taxed at a significantly lower marginal rate. This is a legitimate and widely-used strategy to reduce the overall household CGT bill.

Should You Sell or Hold?

CGT is a transaction cost of selling. Sometimes the most tax-effective strategy is to hold — continue drawing rental income, allow debt to reduce, and defer the CGT event until a more favourable tax year or until death, when different rules apply. The beneficiary receives the property at the deceased's cost base, potentially resetting the CGT clock depending on the timing.

For investors approaching retirement, the decision to sell versus hold should be modelled with a financial adviser who can map the actual numbers against your retirement income target.

Want to Work Through Your CGT Position?

The numbers above are illustrative. Your actual CGT depends on your cost base, holding period, marginal rate, losses available, and timing.

Book a free 20-minute strategy call → https://www.ausretirementoffice.com.au/book

Related reading: How to Avoid Capital Gains Tax on Investment Property in Australia | How to Build a Property Portfolio in Australia | Property Investment Strategy Australia | How Many Investment Properties Do You Need to Retire