Selling Rental Property | CGT Guide Australia
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Primary tax-year context: Current Australian tax settings
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General information only. This is not tax or financial advice. Consult a registered tax agent for advice specific to your situation.
Selling an investment property is often the largest financial transaction of the year — and one of the most tax-significant. Many property investors are surprised by the size of their CGT bill, especially when depreciation claims come back to bite them.
Understanding how CGT works before you sell gives you time to plan. The right timing and structure can legally reduce your tax by thousands of dollars.
If you inherited a rental property, different rules apply — see CGT on inherited property.
How Capital Gains Tax Applies When You Sell a Rental Property
In Australia, capital gains tax is not a separate tax. When you sell a rental property for more than you paid, the profit (your capital gain) is added to your assessable income for that financial year. You then pay tax at your marginal tax rate.
The CGT event occurs when you sign the contract of sale — not when settlement happens. This is important for timing purposes, especially around the end of the financial year.
If you’ve owned the property for more than 12 months, you may be eligible for the 50% CGT discount, which effectively halves the gain before it’s added to your income.
How Your Capital Gain Is Calculated
The basic formula is straightforward:
Capital gain = Capital proceeds − Cost base
- Capital proceeds = Sale price minus selling costs (agent fees, legal fees, marketing)
- Cost base = Purchase price plus acquisition costs plus capital improvements
The complexity comes from getting your cost base right — and accounting for depreciation you’ve claimed.
Want to see your numbers? Use the CGT calculator to calculate your capital gain and estimated tax.
What Goes Into Your Cost Base (and What Doesn’t)
Your cost base is more than the purchase price. Here’s what counts:
Included in cost base:
- Purchase price
- Stamp duty
- Legal and conveyancing fees on purchase
- Building and pest inspection fees
- Loan establishment fees (if capitalised)
- Capital improvements (renovations, extensions, new fixtures)
NOT included in cost base:
- Interest on the loan (claimed as a rental deduction instead)
- Council rates and insurance (claimed as rental deductions)
- Repairs and maintenance (revenue deductions, not capital)
- Depreciation already claimed (this reduces your cost base)
The distinction between repairs (deductible, not in cost base) and improvements (added to cost base) matters. Fixing a broken window is a repair. Replacing all windows with double-glazing is an improvement.
The Depreciation Trap (Why Your Gain Can Be Bigger Than Expected)
This is where many investors get caught.
Every year you claim depreciation on the building (capital works) or fixtures (plant and equipment), your cost base is reduced by that amount. When you sell, those deductions effectively get “recaptured” through a higher capital gain.
Example:
| Item | Amount |
|---|---|
| Original purchase price | $500,000 |
| Stamp duty and legal fees | $25,000 |
| Renovations | $40,000 |
| Initial cost base | $565,000 |
| Less: Depreciation claimed over 8 years | $48,000 |
| Adjusted cost base | $517,000 |
If you sell for $750,000 (after selling costs), your capital gain is $233,000 — not $185,000.
That extra $48,000 in gain comes directly from the depreciation you claimed. You still benefited from the deductions over 8 years, but now they increase your CGT.
Check your depreciation schedule or past tax returns to find your total claims.
Selling Costs That Reduce Your Tax
These costs reduce your capital proceeds (the sale price side of the equation), which has the same effect as increasing your cost base — they reduce your gain:
- Real estate agent’s commission
- Legal and conveyancing fees for the sale
- Marketing and advertising costs
- Styling and staging (if required for the sale)
- Auctioneer fees
Keep all invoices. These costs directly reduce your taxable gain.
The 50% CGT Discount (12-Month Rule)
If you owned the property for at least 12 months before signing the contract, you can reduce your capital gain by 50% before adding it to your taxable income.
The 12-month period is calculated to the day. If you bought on 1 March 2024, you need to sell on or after 2 March 2025 to qualify.
The discount is applied after subtracting any capital losses. So if your net gain before discount is $200,000, only $100,000 is added to your income.
For a detailed explanation of how this works, see how the 12-month CGT discount really works.
Strategies to Reduce Your CGT When Selling
Several legitimate strategies can reduce your tax bill:
Time the sale for a lower-income year
Your capital gain is taxed at your marginal rate. If you’re retiring, taking leave, or expect lower income next financial year, delaying the sale could mean a lower tax rate on the same gain.
Compare the difference using the sell this year vs next year scenario.
Harvest capital losses
If you have shares or other assets sitting at a loss, selling them in the same financial year offsets your property gain. Capital losses must be applied before the 50% discount, so they’re particularly valuable.
You can read more about using capital losses to offset gains.
Ensure you hit the 12-month mark
If you’re close to the 12-month holding period, waiting a few extra weeks to sign the contract can halve your taxable gain. Check your contract date carefully.
Split timing across financial years (if applicable)
In some cases (like instalment contracts), gains can be spread across years. This is complex and requires professional advice.
What If the Property Used to Be Your Home?
If the rental property was previously your main residence, you may qualify for a partial main residence exemption. The exempt portion is based on the time it was your home compared to total ownership.
The 6-year absence rule can also help: if you moved out and rented it for up to 6 years, you may still claim the full main residence exemption — provided you didn’t treat another property as your main residence during that time.
This significantly reduces or eliminates CGT in many cases. Compare the scenarios using the PPOR vs investment property comparison.
Worked Example: Full Rental Property CGT Calculation
The situation:
- Purchased in 2016 for $480,000
- Stamp duty and legals: $22,000
- Kitchen renovation in 2019: $35,000
- Depreciation claimed: $52,000
- Sold in 2026 for $780,000
- Agent commission: $18,000
- Legal fees for sale: $2,000
- Other taxable income this year: $95,000
Step 1: Calculate cost base
| Item | Amount |
|---|---|
| Purchase price | $480,000 |
| Stamp duty and legals | $22,000 |
| Renovation | $35,000 |
| Less: Depreciation claimed | -$52,000 |
| Adjusted cost base | $485,000 |
Step 2: Calculate capital proceeds
| Item | Amount |
|---|---|
| Sale price | $780,000 |
| Less: Agent commission | -$18,000 |
| Less: Legal fees | -$2,000 |
| Capital proceeds | $760,000 |
Step 3: Calculate capital gain
- Capital gain = $760,000 − $485,000 = $275,000
Step 4: Apply 50% discount (held over 12 months)
- Discounted gain = $275,000 × 50% = $137,500
Step 5: Calculate additional tax
The $137,500 is added to the $95,000 other income, pushing total taxable income to $232,500.
At the 45% marginal rate (for income above $190,000), the additional tax on the capital gain is approximately $55,000–$60,000 depending on how the gain stacks across brackets.
Run your own numbers with the CGT calculator to see your exact position.
When Is CGT Payable?
CGT is payable in the financial year you sign the contract — not when settlement occurs.
If you sign on 28 June 2026, the gain falls into the 2025–26 tax year (tax return due October 2026). If you sign on 2 July 2026, it falls into 2026–27.
This gives you some control over timing if the sale is happening near the end of the financial year. Negotiate contract dates accordingly.
Budget for the tax bill. If you’re selling a high-value property with a large gain, consider setting aside funds or discussing PAYG instalment arrangements with your accountant.
Key Takeaways
- Your capital gain is sale proceeds minus cost base, with the result added to your taxable income
- Depreciation you’ve claimed reduces your cost base, increasing your gain
- Selling costs (agent fees, legal fees) reduce your capital proceeds
- The 50% CGT discount applies if you’ve held the property for 12+ months
- Timing your sale around income fluctuations can reduce tax
- If the property was once your home, partial exemptions may apply
- CGT is payable in the year you sign the contract, not settlement
- If you’re selling an investment property, running the numbers before signing can change the outcome by tens of thousands of dollars
Ready to calculate your CGT?
Use the Capital Gains Tax Calculator to see exactly how much tax you’ll owe — and compare different selling scenarios.