Capital Gains Tax on Investment Properties

Selling an investment property can create a capital gains tax issue.

For many property investors, the tax bill is not simply based on the sale price. It depends on the purchase price, buying costs, selling costs, ownership period, improvements, private use, main residence rules, capital losses and the tax rules that apply at the time of sale.

The 2026-27 Federal Budget has also announced major changes to capital gains tax and negative gearing. These changes do not apply to every property straight away, but they are important for investors who are planning to buy, sell or restructure.

At GSD Tax & Business Advisory, we help property investors understand the tax position before they sell, so they can plan properly and avoid surprises.

Quick answer: do you pay CGT when selling an investment property?

Yes, you may pay capital gains tax when you sell an investment property for more than its cost base.

Capital gains tax is not a separate tax. It is part of your income tax.

Your capital gain is generally calculated as:

Sale proceeds minus cost base equals capital gain.

If you are an Australian resident individual and you have owned the property for at least 12 months, you may be eligible for the CGT discount under the current rules.

However, Budget changes announced for capital gains accruing from 1 July 2027 mean the rules are changing for future gains.

What is capital gains tax?

Capital gains tax, or CGT, applies when you dispose of a CGT asset and make a capital gain.

For property investors, a CGT event commonly happens when you sell an investment property.

A capital gain usually arises where your sale proceeds are more than your cost base.

A capital loss usually arises where your sale proceeds are less than your reduced cost base.

Capital losses can generally be used to offset capital gains, but they cannot usually be used to reduce salary, business income or rental income.

How CGT works on an investment property

A simple CGT calculation looks like this:

The taxable capital gain is then included in your assessable income and taxed at your marginal tax rate.

What is included in the cost base?

Your cost base is not just the original purchase price. It may include:

• purchase price
• stamp duty
• legal fees on purchase
• buyer's agent fees
• title transfer costs
• valuation fees in some cases
• capital improvements
• selling agent commission
• advertising costs on sale
• legal fees on sale
• certain ownership costs, depending on the circumstances

Good records matter. Missing records can increase the taxable gain because you may not be able to prove costs that should have been included.

Costs that are not usually included twice

Some costs may already have been claimed as rental deductions while you owned the property.

You generally cannot claim the same cost twice.

For example, if you claimed repairs, interest, council rates or other rental expenses as deductions in earlier years, you usually cannot also add those same amounts to the cost base.

The treatment depends on the type of cost and whether it was deductible, capital, private or related to ownership. This is one of the areas where property investors often get the calculation wrong.

Example: simple CGT calculation

An investor buys a rental property for $650,000. They later sell it for $850,000. Their eligible buying, improvement and selling costs total $70,000.

If the investor is eligible for the current 50% CGT discount, the discounted capital gain may be $65,000. That $65,000 is then included in their tax return and taxed at their marginal tax rate.

This is a simple example only. The actual result can change depending on ownership, dates, capital losses, main residence rules, tax residency and the Budget changes.

Current CGT discount rules

Under the current rules, Australian resident individuals may be eligible for a CGT discount if they have owned the asset for at least 12 months.

For individuals, the discount is generally 50%. This means only half of the eligible capital gain is included in taxable income after applying capital losses.

Different rules can apply to companies, trusts, super funds and foreign residents.

Companies do not receive the 50% CGT discount.

Trusts may be able to pass discount capital gains to eligible beneficiaries, depending on the trust deed and tax rules.

Important Budget update: CGT changes from 1 July 2027

What the Budget changes mean for property investors

The Budget changes may affect:

• when you sell an investment property
• how the taxable gain is calculated
• whether the 50% CGT discount applies
• whether inflation-based indexation applies
• whether the 30% minimum tax applies
• whether a new build receives different treatment
• how future gains are split between pre- and post-1 July 2027 periods
• whether selling before or after a certain date changes the tax result

The key point is simple: property investors should not assume the old 50% CGT discount will apply in the same way to future gains. If you are thinking about selling, buying or restructuring, get advice before making the decision.

Negative gearing changes and investment properties

The Budget also announced changes to negative gearing for residential investment properties.

From 1 July 2027, negative gearing will generally be limited to new builds.

Existing arrangements are expected to remain unchanged for properties held before Budget night on 12 May 2026.

For established residential properties bought after that time, rental losses may be deductible against residential property income, including capital gains, but excess losses may need to be carried forward rather than offset against salary or other non-residential income.

This matters because carried-forward rental losses may affect the overall tax outcome when the property is later sold.

Investment property bought before Budget night

If you held the property before Budget night on 12 May 2026, the announced negative gearing changes should generally not affect your ability to negatively gear that property under the existing arrangements.

However, the CGT changes are different.

The CGT reforms are expected to apply to gains accruing after 1 July 2027, even for assets already owned, when the gain is realised. This means long-term owners may still need to consider the new CGT rules for future growth in value after 1 July 2027.

Investment property bought after Budget night

If you bought an established residential investment property after Budget night on 12 May 2026, the announced negative gearing changes may affect how rental losses are treated from 1 July 2027.

You may not be able to use excess rental losses against salary or other non-residential income in the same way as under the old rules. Those losses may need to be carried forward and used against future residential property income or capital gains.

This makes cash flow planning more important for new investors buying established residential property.

New builds may receive different treatment

The Budget changes are designed to direct tax support towards new housing supply.

Investors who buy new builds may continue to access negative gearing and may be able to choose between the existing 50% CGT discount and the new CGT arrangements.

This means the tax outcome for a new build and an established property may be different. Before buying, investors should model the after-tax position, not just the advertised rental yield.

Main residence exemption and investment properties

Your main residence is generally exempt from CGT.

However, an investment property is usually not fully exempt.

Issues can arise where:

• you lived in the property before renting it out
• you rented out your former home
• you used the property partly as your home and partly to earn income
• you moved out and applied the six-year absence rule
• you moved into a property that was previously rented
• you are a foreign resident
• the property was owned by a trust or company

The main residence rules can significantly change the CGT result. Do not assume a property is fully taxable or fully exempt without checking the dates and use of the property.

The six-year rule

The six-year rule may allow you to continue treating a former home as your main residence for CGT purposes after you move out and rent it.

Broadly, if the property was your main residence and you later rent it out, you may be able to continue treating it as your main residence for up to six years while it produces income.

This rule can be valuable, but it depends on your circumstances. It can be affected by whether you choose another property as your main residence during the same period.

Partial main residence exemption

A partial exemption may apply where a property was your main residence for part of the ownership period and an investment property for another part. For example:

• you bought the property as your home and later rented it out
• you bought the property as an investment and later moved in
• you rented out part of your home
• you used part of the home for business

In these cases, the CGT calculation may need to be apportioned based on time, floor area, use or a combination of factors.

Property owned jointly

If a property is owned jointly, each owner generally reports their share of the capital gain or loss.

For example, if two spouses own an investment property 50/50, each owner generally includes 50% of the capital gain in their tax return.

The tax outcome can differ between owners because each person may have different:

• income levels
• marginal tax rates
• capital losses
• residency status
• eligibility for discounts or concessions

Ownership should be considered before purchase, not only when the property is sold.

Property owned in a company or trust

The CGT outcome can be very different if the property is owned by a company or trust.

A company does not receive the 50% CGT discount.

A trust may be able to distribute capital gains to beneficiaries, but this depends on the trust deed, trustee resolutions and tax rules.

The announced discretionary trust tax changes from 1 July 2028 may also affect planning for some trust structures.

Property ownership structure should be reviewed before buying, selling or transferring property.

Common CGT mistakes property investors make

1. Only using the purchase price

Many investors forget stamp duty, legal fees, capital improvements and selling costs.

2. Claiming the same cost twice

A cost already claimed as a rental deduction usually cannot also be added to the cost base.

3. Ignoring capital improvements

Renovations and improvements can materially affect the cost base.

4. Forgetting about capital losses

Capital losses can reduce capital gains, but they need to be applied correctly.

5. Assuming the 50% discount always applies

Companies do not receive the discount. Foreign resident rules can also limit access. Budget changes may affect future gains.

6. Getting the main residence rules wrong

The main residence exemption, six-year rule and partial exemption rules can materially change the result.

7. Not keeping records

Poor records often mean a higher taxable gain.

8. Selling without planning

Timing can matter, especially with Budget changes, income levels, capital losses and ownership structure.

Records you should keep

Property investors should keep:

• purchase contract
• settlement statement
• loan documents
• stamp duty records
• legal invoices
• buyer's agent invoices
• building inspection costs
• renovation and improvement invoices
• depreciation schedules
• rental statements
• council and water rates
• strata levies
• insurance records
• interest records
• sale contract
• agent commission invoice
• advertising costs
• sale settlement statement
• records showing when the property was your main residence, if relevant

These records should be kept even after the property is sold.

When should you get CGT advice?

You should get advice before selling if:

• the property has increased significantly in value
• you lived in the property at any point
• the property was rented for only part of the ownership period
• you used the six-year rule
• the property is jointly owned
• the property is owned by a trust or company
• you have capital losses
• you are a foreign resident or became a tax resident part way through ownership
• you made major renovations
• you are selling after 1 July 2027
• you bought the property after Budget night on 12 May 2026
• you are unsure how the Budget changes affect you

Good advice before the sale can help you understand the tax result before settlement, not after.

Simple examples

Example 1: Long-term rental property

An investor bought a rental property many years ago and sells it in 2026. The current CGT rules may apply, including the 50% CGT discount if eligible.

Example 2: Former home rented out

A homeowner moves out of their home and rents it for several years before selling. The main residence exemption and six-year rule may reduce or eliminate the capital gain, depending on the facts.

Example 3: Property sold after 1 July 2027

An investor sells after the Budget CGT changes begin. The gain may need to be considered under the new rules for growth accruing after 1 July 2027.

Example 4: Established property bought after Budget night

An investor buys an established residential property after 12 May 2026. From 1 July 2027, rental losses may not be deductible against salary or other non-residential income in the same way as before.

How GSD Tax & Business Advisory can help

Capital gains tax on investment properties can be complex, especially where the property was once your home, is jointly owned, has been renovated, is held in a trust or company, or is being sold around the Budget change dates.

At GSD Tax & Business Advisory, we help property investors across Australia understand the tax outcome before they sell.

We can assist with:

• CGT estimates before sale
• investment property sale tax planning
• main residence exemption analysis
• six-year rule review
• partial exemption calculations
• cost base review
• capital loss planning
• trust and company ownership review
• Budget change impact analysis
• tax return reporting after sale

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