CGT When Selling an Investment Property

You bought at $600,000 and you're selling at $850,000 — the ATO wants a share of the difference. That share is capital gains tax (CGT): the tax on the profit you make when you sell.

It isn't a separate tax with its own rate. The gain is stacked on top of your salary for the year and taxed at your normal marginal rate — the rate on your top dollar of income — like a one-off, very large pay rise.

The good news: two big softeners exist — the 50% discount and the main residence exemption — and knowing how they work can save you serious money.

Your gain isn't sale price minus purchase price. It's what you sell for minus your cost base — everything the place really cost you: price, stamp duty, legal fees, the lot.

Every dollar you add to the cost base is a dollar off your taxable gain, so keep everything.

Own the property as an individual for more than 12 months and you only pay tax on half the gain. That's the CGT discount — the single biggest lever in the whole calculation.

Back to our sale: bought for $600,000, spent $50,000 on buying costs, selling costs and improvements (cost base $650,000), sold for $850,000. Gain: $200,000. After the 50% discount, only $100,000 lands on your tax return.

Sell at 11 months instead of 13 and the full $200,000 hits your return. Two months of patience, roughly a six-figure difference in taxable income.

The discounted gain piles onto your other income and can push you up the tax brackets — the steps where the tax rate climbs. Earn $90,000? Adding $100,000 takes you to $190,000 of taxable income.

Part of that gain is taxed at 30%. Everything above $135,000 cops 37% — plus the 2% Medicare levy (the healthcare add-on) across the lot.

That's why timing is a genuine strategy. Selling in a year when your other income is low — career break, retirement, parental leave — can meaningfully shrink the bill.

Your own home generally escapes CGT entirely — that's the main residence exemption: the house you live in isn't taxed when you sell. It's why most Australians never pay a cent of CGT on their house.

The 6-year rule stretches that free pass further. Move out of your home, rent it to tenants, and you can usually keep treating it as your main residence for up to six years — then sell with zero CGT. Move back in and the clock can reset for a fresh six years.

One catch: you generally can't run two main residences at once. Buy a new home while renting out the old one, and you'll have to pick which property gets the free pass for the overlapping period.

The contract date is the trigger, not settlement — plan the sale around the financial year you actually want the gain in.

Capital losses — money lost on other investments you've sold — can cancel out your gain, and unused losses carry forward to future years forever. The year you sell a property might be the moment to offload a dud shareholding.

Run the numbers before you list, and get a tax professional involved for anything beyond a straightforward sale.