Rent vs Buy in Australia: The Real Tax Comparison (2025-26)

General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.

The rent-versus-buy debate in Australia often focuses on lifestyle and property prices, but tax treatment is one of the biggest variables that people overlook. Buying an investment property unlocks deductions and CGT concessions, but it also brings stamp duty and holding costs. Renting frees up capital that could be invested in assets with their own tax advantages. Here is how the numbers actually compare in 2025-26.

Tax advantages of buying

Owner-occupied property

If you buy a home to live in, the direct tax advantages are limited:

• No capital gains tax — your principal place of residence (PPOR) is fully CGT-exempt when you sell
• No deductions — mortgage interest, council rates, and maintenance on your own home are not tax deductible
• First Home Buyer concessions — stamp duty discounts or exemptions in most states for eligible buyers

The CGT exemption is powerful if property values rise significantly, but you cannot deduct any holding costs along the way.

Investment property

Buying an investment property opens up a wider range of tax concessions:

• Negative gearing — if your rental income is less than your deductible expenses (interest, rates, insurance, repairs, depreciation), the loss reduces your taxable income from other sources like salary
• Depreciation deductions — capital works (Division 43) at 2.5% per year and plant and equipment (Division 40) items can generate significant non-cash deductions
• CGT discount, until 1 July 2027 — hold for at least 12 months and only half the capital gain is taxable. From 1 July 2027 the 50% discount is abolished (Acts 49 and 50 of 2026): gains accruing after that date get CPI cost base indexation instead, taxed at the higher of your marginal rate and 30%
• Interest deductions — the full mortgage interest on an investment loan is deductible against rental income

Tax advantages of renting (and investing the difference)

Renters do not receive any direct tax deductions on rent payments. However, the capital that would have gone into a deposit, stamp duty, and higher mortgage repayments can be deployed into other investments:

• Superannuation — concessional contributions are taxed at just 15% (or 30% for income above $250,000), far below most marginal tax rates
• Shares and ETFs — franking credits on Australian dividends reduce or eliminate double taxation; the 50% CGT discount applies after 12 months, but only to gains accrued before 1 July 2027 (see the worked example below)
• Salary sacrifice — additional super contributions via salary sacrifice reduce taxable income

The key question is whether the tax-advantaged returns from these alternatives outperform the tax-advantaged returns from property ownership, after all costs.

Stamp duty: the hidden tax cost of buying

Stamp duty (transfer duty) is a significant upfront tax cost that buyers face. It varies widely by state and is not deductible for owner-occupiers. Here is what you would pay on a $700,000 property in each state and territory at current rates:

For an investor who cannot access first home buyer concessions, stamp duty on a $700,000 property ranges from roughly $20,000 to $37,000 depending on the state. This is money that a renter could invest on day one. First home buyers, by contrast, can wipe out much or all of this cost — see First home buyer stamp duty concessions by state (2025-26) for the exemption thresholds in each state.

Worked example: $700,000 property over 10 years

Let’s compare two people, both earning $120,000, both with $140,000 in savings.

Assumptions

Both people spend exactly the same amount of cash over the ten years — $658,203. The buyer spends it on a deposit, upfront costs, mortgage repayments and holding costs; the renter spends it on rent, with every dollar of the difference going into shares.

Buyer: owner-occupied

Tax position: No deductions claimed (owner-occupied). No CGT on sale (PPOR exemption — the main residence exemption is untouched by the 2027 CGT changes below). The buyer’s net wealth from the property is $564,440.

Renter: investing the difference

The renter invests the $140,000 deposit plus the $28,187 of stamp duty and legal costs they never had to pay — $168,187 on day one. Each year after that they invest the gap between the buyer’s ongoing ownership costs (mortgage plus rates, insurance and maintenance — $47,876 in year 1) and their own rent ($32,000 in year 1). That gap is $15,876 in year 1 and shrinks every year as rent grows 3.5% while the mortgage repayment stays flat, down to $6,622 by year 10 — $114,611 invested across the decade.

Why the CGT number is not half the gain any more

Acts 49 and 50 of 2026 abolish the general 50% CGT discount from 1 July 2027. In its place, gains that accrue after that date have their cost base lifted by CPI, and are taxed at the higher of your marginal rate and a 30% minimum. Anything you already own on 30 June 2027 is treated as sold and rebought that day, so the gain built up to then keeps the old 50% discount — it is just banked until you actually sell.

For a ten-year run starting now, almost the whole gain lands on the wrong side of that line:

That is an effective 25.1% of the nominal gain. Under the old 50% discount the same gain would have cost $40,904 — the reform adds roughly $23,000 of tax to this scenario, and it grows the longer you hold.

Tax position: Dividends are taxed each year at the marginal rate (partially offset by franking credits — not modelled above). CGT only crystallises if the shares are actually sold; a renter who never sells never pays it, which is a real advantage of the strategy that the table cannot show.

Summary comparison

On these assumptions the buyer finishes about $90,000 ahead over ten years. Two things drive that. First, leverage: the buyer’s 4% growth compounds on the full $700,000, while the renter’s 8% return compounds on a portfolio that starts at $168,187 and receives a shrinking annual top-up — by year 10 the buyer is ahead by roughly $26,000 before any tax is considered. Second, tax: the buyer’s gain is fully exempt as a main residence, while the renter’s is not, and after 1 July 2027 the renter’s gain no longer gets halved.

The margin is narrower than it looks, though, and it is sensitive to the inputs. Push property growth below about 3.5%, raise the share return, use a lower-stamp-duty state, or simply never sell the portfolio, and the renter can pull back in front. The point is not that buying always wins — it is that the CGT discount was doing a lot of the work in the renting case, and from 1 July 2027 it stops.

When buying wins

• Property growth exceeds 5-6% per year (leverage amplifies gains)
• You plan to live in the home for 15+ years (stamp duty cost is amortised, full CGT exemption)
• You are buying an investment property and can claim negative gearing, depreciation, and interest deductions
• Mortgage rates fall significantly during the holding period
• You lack the discipline to consistently invest the difference

When renting + investing wins

• You are in a high-stamp-duty state and plan to move within 5-7 years
• Share market returns are strong (historically 8-10% long-term in Australia)
• You maximise super contributions at 15% tax (far below most marginal rates)
• Property growth is modest (2-3% in your target area)
• You value flexibility — job changes, lifestyle changes, location changes
• You do not intend to sell the portfolio — CGT is only payable on realisation, so an un-sold portfolio never triggers the post-2027 rules

Key takeaways

• Owner-occupied buyers get CGT exemption but cannot deduct mortgage interest — the main tax benefit is on sale, not while holding
• Investment property buyers get negative gearing and, on gains accrued before 1 July 2027, the CGT discount — making the tax position materially different from owner-occupiers
• Stamp duty is a substantial upfront tax cost — $20,000 to $37,000 on a $700,000 property depending on the state
• Renters can redirect savings into super (15% tax) and shares (franking credits, and the CGT discount on pre-July-2027 growth) for competitive after-tax returns
• From 1 July 2027 the 50% CGT discount is gone (Acts 49 and 50 of 2026) — replaced by CPI cost base indexation and a 30% minimum tax on post-reform gains. On a 10-year horizon that lifts the renter’s CGT bill by more than half ($40,904 to $64,212 here) and is enough to change which strategy wins
• The breakeven point depends heavily on property growth rate, holding period, and stamp duty costs
• Use the Rent vs Buy Calculator to model the comparison with your own numbers