Capital Gains Tax on Investment Property Australia: What You'll Actually Pay in 2026

Capital gains tax on investment property in Australia has always been significant. After the 2026 federal budget, it became more expensive for most investors — and the strategies available to reduce it became more valuable.

This guide covers how CGT on investment property is actually calculated in 2026, what the budget changes mean in dollar terms, and the six legal strategies that reduce what you owe — some of which need to be implemented before you sell.

Capital gains tax is not a separate tax in Australia — it is part of your income tax. When you sell an investment property, the capital gain is added to your other income for that financial year and taxed at your marginal rate.

The calculation:

Capital gain = Sale price minus (purchase price + purchase costs + capital improvements + selling costs)

If you have held the property for more than 12 months, a discount applies before the gain is added to your income. The size of that discount changed in 2026.

Before July 2026 (prior law): 50% CGT discount for individuals. A $400,000 gain became $200,000 taxable income.

From July 2026 (new law for residential property): 33% CGT discount for individuals on residential investment property. That same $400,000 gain becomes $268,000 taxable income — an increase of $68,000 in assessable income.

At a 47% marginal rate, that change costs an additional $31,960 in tax on a $400,000 gain. On a $600,000 gain — realistic for a property held 10–15 years in a strong market — the additional tax is nearly $50,000.

Here is what CGT looks like on a $400,000 capital gain (property held more than 12 months) at different income levels under the 2026 rules:

$120,000 salary (marginal rate 39% including Medicare levy):
Discounted gain: $268,000
Added to income: total income $388,000 — top slice taxed at 47%
Effective CGT: approximately $100,000–$110,000 on the $400,000 gain

$180,000 salary (marginal rate 47%):
Discounted gain: $268,000
Full amount taxed at 47%
Effective CGT: approximately $126,000 on the $400,000 gain

Under the old 50% discount rule:
Discounted gain: $200,000
At 47%: approximately $94,000

The 2026 change has increased the CGT bill for high-income investors by approximately $32,000 on a $400,000 gain — before any reduction strategies are applied.

Because CGT is part of your income tax, the marginal rate applied to the gain depends on your total income in the year of sale. Timing the sale to a year when your income is lower can reduce the rate significantly.

If you are selling near retirement and your income drops from $180,000 to $80,000, the capital gain may be taxed at 34.5% rather than 47% — saving approximately $34,000 on a $400,000 gain. On larger gains, the saving is proportionally greater.

This strategy requires planning the sale date 12–18 months ahead — it cannot be applied retrospectively once the contract is signed.

If you lived in the property as your main residence before renting it out, you may be able to claim a full or partial exemption on the capital gain under the 6-year rule.

How it works: you can treat a property as your main residence for CGT purposes for up to 6 years after you move out, as long as you do not nominate another property as your main residence during that time. If you sell within 6 years of moving out, the entire gain may be exempt.

On a $400,000 gain, this exemption is worth up to $126,000 in CGT savings at the top marginal rate. It is one of the most powerful CGT concessions available to Australian property investors — and many are unaware it applies to their situation. For the full breakdown: how to avoid CGT on investment property Australia: 7 legal strategies.

Capital losses from other investments can be applied against your property capital gain, reducing the taxable amount dollar for dollar.

If you have underperforming shares, a loss-making investment property, or other assets with unrealised losses, selling them in the same financial year as your investment property can reduce your net capital gain. The timing needs to be coordinated — losses realised in a different year cannot be applied retrospectively to gains.

This strategy works best when combined with the income-year timing strategy: selling the property and crystallising capital losses in the same low-income year.

The most structurally significant CGT reduction available to Australian property investors is holding the property inside a self-managed super fund rather than in personal name.

CGT rates inside an SMSF:

• Accumulation phase: 15% tax on gains, with a one-third discount for assets held over 12 months — effective rate of 10%
• Pension phase: 0% CGT on all gains

Compared to a personal holding at 47% marginal rate with 33% discount — effective rate of approximately 30% — the difference is 20 percentage points.

On a $400,000 gain, the difference between personal (30% effective) and SMSF pension phase (0%) is $120,000. This is not a marginal saving — it is a structural one, and it is why high-income Australian property investors have significantly increased their use of SMSF structures after the 2026 budget changes. See: why high earners are using SMSF property after the 2026 budget.

Your capital gain is calculated as sale price minus cost base. A higher cost base means a smaller gain — and less tax. Many investors underestimate their cost base by failing to include all eligible costs.

The cost base for an investment property includes:

• Purchase price
• Stamp duty and legal fees at purchase
• Building and pest inspection costs
• Loan establishment fees (if not claimed as deductions)
• Capital improvements (extensions, renovations, structural work — not repairs)
• Selling agent commissions and marketing costs
• Legal fees at sale

A detailed cost base can reduce a $400,000 gain to $340,000 — worth $18,000–$24,000 in CGT savings at the top marginal rate. Keep records of every capital expenditure from the date of purchase. Receipts for improvements made 15 years ago are worth real money at sale.

Note: Depreciation claimed as a tax deduction during the ownership period reduces the cost base by the amounts claimed after 1999. This is accounted for automatically if you have a depreciation schedule — your accountant or quantity surveyor can clarify the exact adjustment for your property.

In some circumstances, structuring the sale as installment payments over more than one financial year can spread the capital gain across two tax years — applying a lower marginal rate to each portion than would apply if the full gain was realised in a single year.

This strategy is complex and requires specialist tax advice before any contract is signed. It is not applicable in every situation, but for large gains where a single-year realisation would push income significantly above $180,000, it can reduce the effective CGT rate meaningfully.

Several CGT provisions that matter to property investors were not changed by the 2026 budget:

• The 12-month holding requirement for any discount (still required)
• The 6-year main residence exemption (unchanged)
• SMSF accumulation phase tax rate (still 15%, with 10% effective rate after discount)
• SMSF pension phase CGT treatment (still zero)
• The ability to offset capital losses against gains
• The inclusion of capital improvements in cost base

What changed: the individual discount rate on residential investment property (from 50% to 33%), which increases the effective CGT rate for individuals from approximately 22.5% to 30% at the top marginal rate.

For investors planning property sales in 2026–2027, understanding which strategies apply to your situation before you sell is the most valuable thing you can do. The decisions made after the contract is signed have significantly less impact on the tax outcome than decisions made 12–18 months before. See also: how much CGT you can legally avoid when selling investment property and what to do before the CGT discount is cut further.

Book a Strategy Call

If you are planning to sell an investment property and want to understand your CGT position before you do — a 20-minute call can save you significantly more than it costs.

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

Disclaimer: The information provided by Australian Retirement Office is general in nature and educational only. It does not constitute financial product advice, legal advice, or taxation advice, and does not take into account your objectives, financial situation, or needs. Australian Retirement Office does not hold an Australian Financial Services Licence (AFSL). Where appropriate, we may refer you to licensed professionals within our partner network. We may receive referral fees for these introductions. All investments carry risk, including potential loss of capital. Past performance is not a reliable indicator of future returns. You should obtain professional advice and review all relevant Product Disclosure Statements (PDS) before making any financial decisions.

Related reading: How to Avoid CGT on Investment Property: 7 Legal Strategies | How Much CGT You Can Legally Avoid When Selling | SMSF Property: The 2026 Budget Case | Australian Property Investment Strategy: Step-by-Step | CGT Discount Cut: What to Do Before 2027