Capital Gains Tax on Property in Australia 2026: What Owners Need to Know

Capital gains tax on property catches many Australian homeowners and investors off guard — not because the rules are secret, but because they’re applied years or decades after purchase, when records may be thin and the original cost base is a distant memory. Here’s how CGT works on Australian property in 2026, from the main residence exemption through to the cost base calculation.

CGT basics: when it applies and how it’s calculated

CGT is not a separate tax — it’s the capital gain component of your income tax return. When you sell a property for more than you paid for it (the cost base), the difference is a capital gain and is added to your assessable income for that financial year, taxed at your marginal rate.

The CGT event is the date you enter into the sale contract, not the settlement date. If you sign the contract on 25 June 2026 but settlement occurs on 25 August 2026, the capital gain is reported in your 2025-26 tax return (because the contract date falls in that financial year). This timing can matter for tax planning: a sale in late June pushes the gain into the current tax year, while a sale on 1 July pushes it into the following year. If your income is expected to drop next year (retirement, going part-time, taking a lower-paying role), delaying the contract date by a week can shift the gain into a lower-tax year.

The capital gain is not the full sale price — it’s the sale price minus the cost base. A property bought for $500,000 and sold for $800,000 produces a capital gain of $300,000 (before discount and before adjusting the cost base for improvements and selling costs). If your cost base is $550,000 (purchase price plus $50,000 in stamp duty, legal fees, and capital improvements), the gain drops to $250,000.

The main residence exemption

Your home — your principal place of residence — is exempt from CGT. If you’ve lived in the property for the entire period you owned it and never used it to produce income, you don’t pay CGT when you sell. There’s no dollar limit on the exemption.

To qualify, the property must be your main residence. You can only claim one main residence at a time (with a 6-month overlap when moving between homes). The land must be 2 hectares or less — if you have a large rural property, the exemption applies to the home and up to 2 hectares of adjacent land used for private purposes, with the remaining land subject to CGT on a pro-rata basis.

The exemption applies to houses, apartments, units, and mobile homes that are fixed to the land. It doesn’t matter whether you own the property individually, jointly, or through a trust (subject to trust-specific rules). It doesn’t matter how much the gain is — a $2 million profit on a family home held for 30 years is entirely tax-free.

However, if you’ve ever used the property to produce income during the ownership period, the exemption may be limited. Using part of the home as a home office or renting out a room can affect the exemption. A home office that occupies 10% of the floor area and is used exclusively for business means 10% of the capital gain is taxable — except if the office is in a room that’s also used for personal purposes (a laptop on the dining table doesn’t trigger CGT, but a dedicated office with a separate entrance might).

The six-year rule: renting out your former home

You can move out of your home, rent it out, and still claim the main residence exemption for up to 6 years after you move out, under the ‘absence rule’ (commonly called the six-year rule). This means you can relocate for work, travel, move in with a partner, or temporarily relocate and still sell your former home CGT-free — as long as you sell within 6 years of moving out (or the property stops being rented and you don’t buy another main residence).

The six-year period is per absence. If you move back in after 4 years of rental, the clock resets — you can rent it out again for another 6 years and still claim the exemption. You can repeat this cycle indefinitely as long as you don’t claim the main residence exemption on another property during the same period (overlap rules apply).

During the absence, the property must genuinely be used to produce income (rented or available for rent) — you can’t leave it vacant indefinitely and claim the exemption. If the property is rented for 6 years, then vacant (not producing income) for 2 years, the exemption may be lost for the post-6-year period regardless of vacancy.

After 6 continuous years of rental, the exemption is lost for the period beyond 6 years. The capital gain is apportioned by time: if you owned the property for 10 years, lived in it for 2 years, and rented it for 8 years, the first 2 years plus the first 6 years of rental (total 8 years) are exempt, and the remaining 2 years of rental produce a taxable capital gain of 2/10 of the total gain.

The 50% CGT discount

If you’re an Australian resident individual and you’ve held the property for more than 12 months, you can discount the capital gain by 50% before adding it to your income. This is one of the most generous aspects of the Australian tax system for property investors and a key reason why long-term property holding is tax-advantaged relative to short-term trading.

The discount applies after the cost base calculation and after applying any capital losses from other assets. A $200,000 capital gain on a property held for more than 12 months becomes $100,000 of assessable income. For someone in the 37% tax bracket, the tax on the gain drops from $74,000 (without discount) to $37,000 (with discount) — a saving of $37,000.

The 12-month holding period is measured from the acquisition date (contract date when you bought) to the CGT event date (contract date when you sold). The settlement dates are irrelevant for this calculation. If you bought on 15 July 2024 and sell on 16 July 2025, you’ve held the property for more than 12 months and the discount applies.

Companies do not receive the CGT discount. Super funds receive a 33.3% discount. Trusts distribute capital gains to beneficiaries who can apply their own discount status — an individual beneficiary receiving a trust distribution of a capital gain can apply the 50% discount if the asset was held for more than 12 months.

Cost base calculation: what to include and what records to keep

The cost base is everything you’ve spent to acquire, hold, and sell the property. It’s the most important number in your CGT calculation because it directly reduces your capital gain (and therefore your tax). A sloppy cost base means you overpay tax.

Include in the cost base: the purchase price, stamp duty on purchase, legal fees and conveyancing costs for the purchase, title search fees, building and pest inspection reports, mortgage registration and discharge fees (some, not all — check with your accountant), and any capital improvements — renovations, extensions, a new kitchen or bathroom, landscaping, driveway, fencing, solar panels, air conditioning installation, structural repairs that improve the property (as distinct from repairs that restore it to its original condition).

Capital improvements vs repairs is a critical distinction. Painting a rental property is a repair — it’s deductible against rental income in the year you spend it. Replacing the kitchen is a capital improvement — it’s added to the cost base and reduces your capital gain when you sell. If you classify a capital improvement as a repair and deduct it against rental income, you’ve both claimed the deduction and not increased the cost base — the ATO gets you at both ends. Keep invoices for all work done on investment properties and correctly classify each expenditure.

Selling costs are added to the cost base: real estate agent commission, legal fees on sale, auctioneer fees, advertising costs, and styling costs specifically for sale.

Items excluded from the cost base: loan interest (deductible against rental income as incurred), rates and insurance (deductible against rental income), repairs and maintenance (deductible against rental income), and any portion of costs already claimed as a tax deduction. Importantly, depreciation claimed on the building or its fixtures reduces the cost base — every dollar of depreciation you’ve claimed over the years increases your eventual capital gain by the same amount. This is why investors who maximise depreciation claims during the holding period face a correspondingly larger CGT bill on sale.

The ATO can request records going back to the original purchase to verify your cost base — there’s no time limit on this. Keep purchase contracts, settlement statements, invoices for all capital improvements, and depreciation schedules for the entire ownership period plus five years after the CGT event.

Foreign residents and CGT

Foreign residents have been largely excluded from the main residence exemption since 2020. If you’re a foreign resident at the time of sale, you cannot claim the main residence exemption unless specific life events apply (death of a spouse or dependent child within 6 years of becoming a non-resident, terminal medical condition, or similar). For most foreign residents selling Australian property, the entire capital gain is taxable with no main residence exemption regardless of how long they lived in the property before moving overseas.

Foreign residents also face a 12.5% withholding tax at settlement. The purchaser withholds 12.5% of the sale price and remits it to the ATO — this is not the final tax, it’s a prepayment against the CGT assessed when the foreign resident seller lodges their tax return. The withholding applies to property sales over $750,000 unless the seller provides a clearance certificate from the ATO confirming they’re an Australian resident.

This withholding regime catches many Australian expats who sell property while living overseas. If you’re an Australian citizen living in London and sell your former Sydney home, you’re likely a foreign resident for tax purposes, the main residence exemption doesn’t apply, and the buyer must withhold 12.5% of the purchase price. The CGT bill can be substantial, and the withholding (which can be hundreds of thousands of dollars on a Sydney property) is held by the ATO until you lodge your tax return — which may be months after settlement, impacting your cashflow.

Use the Currency Converter calculator if you’re calculating gains in a foreign currency or sending proceeds overseas. For property-related guidance, see our guides on stamp duty on investment property and deposit needed to buy a house.

Disclaimer: This article provides general information only and does not constitute financial, tax, or legal advice. CGT rules are complex and fact-specific. Always consult a registered tax agent or accountant for advice specific to your circumstances. Last updated: July 2026.