---
title: Capital Gains Tax on Property in Australia | GNT Finance
description: How capital gains tax works when you sell property in Australia: main residence exemption, 50% discount, six-year rule, cost base and a Melbourne example.
url: https://gntfinance.com.au/legal/capital-gains-tax-on-property/
section: legal
updated: 2026-09-01
author: Gorakh Timilsina, GNT Finance
---

# Capital gains tax on property, explained

**In short:** Capital gains tax (CGT) applies to the profit you make when you sell property in Australia that is not your main residence. The gain is added to your taxable income in the year the contract is signed. If you have owned the property for more than 12 months as an individual, only half the gain is taxed. Your home is exempt, and a former home can stay exempt for up to 6 years after you move out and rent it.

CGT is not a separate tax with its own rate. It is your ordinary income tax applied to a capital gain, which is why the same sale can cost one investor far more than another. This page walks through the rules under the Income Tax Assessment Act 1997 (Cth), the exemptions Melbourne investors use most, and a worked example.

## What the law says

CGT is contained in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (Cth) and administered by the ATO ([ato.gov.au](https://www.ato.gov.au)). The essentials:

- **CGT event A1** happens when you dispose of a CGT asset. For property, the event occurs when you sign the contract of sale, not at settlement. That decides which tax year the gain falls in.
- **Capital gain** is the capital proceeds (sale price less selling costs) minus the cost base.
- **Cost base** includes the purchase price, incidental costs of buying and selling (duty, conveyancing, agent's commission, marketing), capital improvements, and certain holding costs not otherwise deducted. Capital works deductions you have claimed reduce the cost base.
- **50% discount.** Individuals and trusts that hold the asset for more than 12 months reduce the gain by half. Companies get no discount. SMSFs get a one-third discount.
- **Main residence exemption.** A dwelling that was your main residence for the whole ownership period is fully exempt. Partial exemption applies where it was your home for only part of the time or was partly used to produce income.
- **Six-year absence rule.** If you move out of your home and rent it, you can continue to treat it as your main residence for up to 6 years, provided you don't treat another property as your main residence at the same time. The 6 years resets if you move back in.
- **Foreign residents.** Since the 2020 changes, a person who is a foreign resident for tax purposes at the time of the sale generally cannot claim the main residence exemption, with limited exceptions.
- **Death.** No CGT arises on death; the beneficiary inherits the asset with cost base rules that depend on when it was acquired and whether it was the deceased's main residence.
- **Capital losses** offset capital gains, not ordinary income, and can be carried forward.

### 2026–27 resident tax rates applied to the gain

| Taxable income | Rate |
|---|---|
| $0 to $18,200 | Nil |
| $18,201 to $45,000 | 15% |
| $45,001 to $135,000 | 30% |
| $135,001 to $190,000 | 37% |
| $190,001 and over | 45% |

Plus the 2% Medicare levy. A large gain can push part of your income into a higher bracket in the year of sale.

## How CGT is calculated, step by step

1. **Work out capital proceeds.** Sale price less agent's commission, marketing and legal costs of sale.
2. **Work out the cost base.** Purchase price, plus duty, conveyancing and other buying costs, plus capital improvements, less capital works deductions claimed.
3. **Subtract** to get the gross capital gain, or loss.
4. **Apply any exemption**, such as a partial main residence exemption for years you lived there.
5. **Offset capital losses** from this year or carried forward.
6. **Apply the 50% discount** if held more than 12 months.
7. **Add the net gain to your taxable income** for the year of the contract date and calculate tax at your marginal rates plus Medicare levy.

## Worked example

You bought a $580,000 investment house in Wollert in 2021. With duty, conveyancing and other purchase costs, and a $12,000 kitchen upgrade, your cost base is $610,000. In 2026 you sign a contract to sell for $760,000; after agent's commission and selling costs, capital proceeds are $740,000.

- Gross capital gain: $740,000 minus $610,000 = $130,000.
- Held more than 12 months, so the 50% discount applies: net gain $65,000.
- Your salary is $70,000. Adding $65,000 gives taxable income of $135,000. The whole $65,000 falls within the 30% bracket.
- Tax on the gain: 30% plus 2% Medicare levy on $65,000 = $20,800.

If you had held the property for 11 months, the full $130,000 would be taxed and part of it would spill into the 37% bracket. If the house had been your main residence for the first three of the five years and you had claimed the six-year rule, the entire gain would be exempt provided you had no other main residence during that period.

Use our [capital gains tax calculator](/calculators/capital-gains-tax/) to run your own figures.

## What it means for your home loan and property strategy

- **Loan interest is deductible, not part of the cost base.** Interest on an [investment loan](/services/investment-property-loans/) is claimed each year against rent, which is the basis of [negative gearing](/guides/negative-gearing-explained/). Don't add it to the cost base as well.
- **Refinancing doesn't trigger CGT.** Only disposal does. Releasing equity through a refinance to buy another property has no CGT consequence.
- **Rentvesting and the six-year rule.** [Rentvesting](/guides/rentvesting/) investors who once lived in the property can often keep the main residence exemption while renting elsewhere.
- **Selling to reduce debt.** If you sell an investment to pay down your home loan, budget the CGT before you count on the proceeds.
- **Timing the contract date.** Signing on 1 July rather than 28 June moves the gain into the next tax year, which matters if your income is lower next year.
- **Ownership shares.** CGT follows title. Tenants in common in unequal shares split the gain in those shares; see [joint tenants vs tenants in common](/legal/joint-tenants-vs-tenants-in-common/).
- **Foreign residents.** If you plan to leave Australia, selling before you become a foreign resident may preserve the main residence exemption.

GNT Finance is not a tax adviser, but we work alongside your accountant so that the loan structure, the ownership split and your exit plan are consistent. Our home-loan service is at no cost to you in most cases.

## Common mistakes

- **Using settlement date instead of contract date** for the tax year.
- **Forgetting to add duty and buying costs to the cost base**, which overstates the gain.
- **Claiming capital works deductions and not reducing the cost base** for them.
- **Assuming the family home is always exempt.** Running a business from home, renting a room, or holding it on more than 2 hectares can reduce the exemption.
- **Treating two properties as the main residence** at the same time under the six-year rule.
- **Selling in a high-income year** when a later year would have been cheaper.

## Frequently asked questions

### How much is capital gains tax on an investment property in Australia?

There is no fixed rate. The net capital gain, after the 50% discount for assets held more than 12 months, is added to your taxable income and taxed at your marginal rate plus the 2% Medicare levy. An investor on a $70,000 salary with a $130,000 gross gain would pay about $20,800 under the 2026–27 rates. Higher incomes pay 37% or 45% on part of the gain.

### Do I pay capital gains tax when I sell my house?

Not if it has been your main residence for the whole time you owned it, sits on 2 hectares or less, and wasn't used to produce income. If you rented it out for part of the period or ran a business from it, a partial exemption applies. If you moved out and rented it, the six-year absence rule may keep it fully exempt.

### What is the six-year rule for capital gains tax?

If you move out of your main residence and rent it, you can continue treating it as your main residence for CGT purposes for up to 6 years, as long as you don't claim another property as your main residence in that period. If you move back in and out again, a fresh 6-year period starts. If the property is left vacant rather than rented, the exemption can continue indefinitely.

### Is capital gains tax calculated on the contract date or the settlement date?

The contract date. CGT event A1 happens when you enter into the contract of sale, so the gain belongs to the tax year in which the contract is signed, even if settlement occurs in the following year. This is why investors sometimes delay signing until after 30 June when their income is expected to fall.

### Can I avoid capital gains tax by refinancing instead of selling?

Yes, in the sense that refinancing is not a disposal and triggers no CGT. Drawing on equity through a refinance to fund another purchase or a renovation has no CGT consequence. CGT is only assessed when you sell, gift or otherwise dispose of the property. The trade-off is that debt remains, so the strategy has to make sense on cash flow.

## Talk to GNT Finance

If you're weighing up selling an investment property or refinancing to hold it, the tax outcome is half the decision and the loan is the other half. GNT Finance can model the finance side with you and your accountant. [Book a free consultation](/contact/) or call 0426 403 703.

*This page is general information only and not legal, tax or financial advice. Laws change — confirm current rules with the State Revenue Office, the ATO or a licensed professional.*