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Published January 23, 2025
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How Does Capital Gains Tax (CGT) on Property Work?

If you are a home owner or real estate investor, it’s important to understand how capital gains tax works on property before you sell.

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What is capital gains tax?

A capital gain is the profit you make by selling an asset (in this case a property) for more than you originally bought it. Capital gains tax (CGT) is the tax you may be liable to pay on the profits made from selling those assets. 

Understanding CGT for property owners and investors

Depending on your circumstances, the Australian Taxation Office (ATO) requires you to declare capital gains on certain property sales and include those proceeds as part of your taxable income for that financial year. For example, if you buy an investment property for $500,000 and sell it years later for $550,000, you are liable for tax on your capital gain of $50,000.

As a property owner or investor you may be liable for tax on the profits you make on selling a house, land, apartment, or townhouse.

The amount you are taxed will depend on: 

CGT discounts and exemptions 

There are circumstances where you may not have to pay CGT or pay a reduced CGT such as: 

Capital losses

A capital loss occurs when you sell an asset for a loss. If you sell a property, shares, or another asset for less than you bought it you can deduct this from any capital gains you made. You cannot, however, deduct a capital loss from your taxable income, you can only offset one against a capital gain. 

CGT discount

When you sell a property, you can reduce your capital gain by 50%, if both of the following apply:

This means if you make $50,000 capital gain on the property but you owned it for more than 12 months, your taxable income only increases by $25,000 for that financial year. 

However, if you used the property for rental or business purposes less than 12 months before selling it, the CGT discount will not apply.

The ATO also provides a CGT property exemption tool to help you see if you qualify. 

Principal place of residence exemption

In Australia, if you sell your property and it was your principal place of residence (PPR), it is typically exempt from CGT under the main residence exemption. This means you generally do not have to pay CGT when selling your home.

However, CGT may apply if:

Extra discount for affordable rental housing 

There is an additional CGT discount of up to 10% for Australian residents who provide affordable rental housing to people earning low to moderate income.

This increases the CGT discount to 60% for owners of these residential rental properties.

How to calculate CGT 

Although it is referred to as ‘capital gains tax’, CGT actually comprises part of your income tax and is not a separate tax. 

If you bought and sold a property within 12 months, your capital gain is added to your taxable income, which is then taxed at the corresponding tax bracket you now fall into. 

Resident tax rates 2024–25

Taxable incomeTax on this income
0 – $18,200$0
$18,201 – $45,00016c for each $1 over $18,200
$45,001 – $135,000$4,288 plus 30c for each $1 over $45,000
$135,001 – $190,000$31,288 plus 37c for each $1 over $135,000
$190,001 and over$51,638 plus 45c for each $1 over $190,000

Source: ATO 

You can also use the cost base method to calculate your capital gains. In this system, you combine the price you paid for the property when you bought it and add any costs you incurred along the way such as stamp duty, land tax, legal fees, insurance and conveyancing.  

Example:

In this case, your cost base would be $520,000 ($500,000 + $20,000). If you sold the property for $700,000 and had $15,000 in selling costs, your capital gain would be:

Capital Gain = $700,000 – $520,000 – $15,000 = $165,000

If you are eligible for the 50% CGT discount, you’d only pay tax on half of that amount, which is $82,500. 

You can also use the ATO capital gains tax tool to calculate your capital gain.

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