What Tax Do I Pay When I Sell My Investment Property in Australia?
When you sell an investment property in Australia, you pay Capital Gains Tax on the profit. CGT is not a separate tax rate — the gain is added to your assessable income for the year of sale and taxed at your marginal rate. This guide walks through the exact calculation step by step with worked dollar examples at different income levels, so you know precisely what to expect before you sign the agency agreement. ATO reference: ato.gov.au/cgt-rental-properties.
Step 1: Calculate the Capital Gain
Capital gain = Net sale proceeds minus cost base.
Net sale proceeds: Contract price minus selling costs — agent commission (typically 2-2.5%), marketing, legal/conveyancing fees on sale, auctioneer fees if applicable.
Cost base: Everything you paid to acquire and hold the property in a capital sense: purchase price + stamp duty + legal fees on purchase + building and pest inspection fees + capital improvements made during ownership (renovations that enhanced the property beyond its original condition — not repairs or maintenance) minus Division 43 building allowance deductions you claimed during ownership (you cannot deduct them twice).
Worked example:
Sale price: $1,150,000. Selling costs: $28,000. Net proceeds: $1,122,000.
Purchase price 2014: $620,000. Stamp duty: $25,000. Legal on purchase: $2,000. Kitchen renovation 2019: $32,000. Division 43 claimed over 10 years: $42,000.
Cost base: $620,000 + $25,000 + $2,000 + $32,000 - $42,000 = $637,000
Gross capital gain: $1,122,000 - $637,000 = $485,000
Step 2: Apply the CGT Discount
If you held the property for more than 12 months, a discount reduces the portion of the gain that is assessable. The rate depends on when you bought and your ownership structure:
Individual, property purchased before 2026 budget cutoff: 50% discount — only 50% of the gross gain is assessable
Individual, property purchased after 2026 budget cutoff: 33% discount — 67% of the gross gain is assessable
SMSF in accumulation phase, held 12+ months: 33% discount, then taxed at 15% fund rate
SMSF in pension phase: 0% — zero CGT regardless of gain size
Held under 12 months (any structure): No discount — 100% of the gain assessable at full marginal rate
Company: No CGT discount at all — 100% taxed at 25-30%
Continuing the example (property purchased pre-cutoff, held 10 years):
$485,000 gross gain x 50% discount = $242,500 assessable
Step 3: Add to Income and Tax at Marginal Rate
The assessable gain is added to all your other income for the financial year — salary, other rental income, business income, interest. The full combined amount is taxed at the marginal rates. The CGT is the extra tax you pay because of the gain.
FY2026-27 individual marginal rates (including 2% Medicare levy):
$0 to $18,200: 0%
$18,201 to $45,000: 19%
$45,001 to $120,000: 32.5%
$120,001 to $180,000: 37%
$180,001+: 47%
Example A — High income ($200,000 salary):
Total assessable income: $200,000 + $242,500 = $442,500
The full $242,500 gain falls above $180,000 — taxed at 47%
CGT: $242,500 x 47% = $113,975
Example B — Middle income ($80,000 salary):
Total assessable income: $322,500
CGT component (the gain stacked on top of salary): approximately $104,000
Example C — Retirement year (no salary, gain only):
$242,500 assessed from zero income — blended rate across all brackets
CGT: approximately $72,975
Saving vs Example A from timing alone: $41,000
Example D — SMSF pension phase:
CGT: $0
Do I Pay Tax on the Full Sale Price?
No — only on the profit. If you paid $647,000 all-in (purchase price plus all acquisition costs) and sell for $1,122,000 net, you pay CGT only on the $475,000 profit — and only on the discounted portion of that profit. Your original capital is returned to you completely tax-free. You are never taxed twice on money you already paid.
When Does CGT Trigger — Exchange or Settlement?
CGT is triggered at exchange of contracts — not settlement. If you exchange on 25 June 2026 but settle in August 2026, the gain is assessed in FY2025-26. If you exchange in July 2026, the gain falls in FY2026-27. This distinction is important for tax planning. The year you exchange determines which year the CGT is payable — and if one year has significantly lower income (for example the year you retire), choosing that year for exchange can save tens of thousands in tax. Always know which financial year you want the gain in before you sign the contract.
What About GST When Selling?
GST does not apply to the sale of existing residential investment property. The sale is "input taxed" — no GST is charged by the vendor and none is claimable. GST only applies when a developer sells brand-new residential premises. If you are an individual investor selling a residential property that has been rented, you are not registering for GST, not charging GST, and not affected by GST on the sale proceeds.
The Key Ways to Legally Reduce the Tax
Hold more than 12 months: Non-negotiable. The CGT discount (50% or 33%) is the single biggest lever — worth $47,000-$113,000 on a $400,000 gross gain at 47% marginal rate. Never sell early.
Sell in your lowest-income year: The year you retire, your salary drops to zero and the gain is taxed at the blended rate from scratch — saving $40,000-$80,000 vs selling at peak salary. Plan the exchange date around your income year, not the settlement date.
Maximise the cost base: Every documented capital expense reduces the gross gain dollar-for-dollar. Commission a cost base review with your accountant before listing. Missing receipts from 10 years ago are real money lost at sale.
Apply capital losses: Losses from shares, ETFs, or cryptocurrency in the same financial year offset the property gain before the CGT discount is applied. Losses carry forward indefinitely from previous years.
Main residence 6-year rule: If you previously lived in the property and moved out within the last 6 years without nominating another main residence, the entire gain may be CGT-exempt — even though it has been rented.
SMSF pension phase: Zero CGT on any gain. The most powerful strategy for investors who hold or plan to hold property inside an SMSF. Full FY27 strategy guide: CGT Minimisation Guide: FY27 Edition.
Quick Reference Summary
Gross capital gain = Net sale proceeds minus cost base
Assessable gain if pre-cutoff and held 12+ months = Gross gain x 50%
Assessable gain if post-cutoff and held 12+ months = Gross gain x 67%
Assessable gain if held under 12 months = Gross gain x 100%
SMSF pension phase = $0 CGT
CGT event date = Exchange of contracts (not settlement)
Payment = In your annual tax return for the year of exchange
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Disclaimer: General information only, not tax advice. CGT calculations depend on individual circumstances. Australian Retirement Office does not hold an AFSL. Always obtain advice from a qualified tax adviser before making property sale decisions.
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