CGT on Investment Property in Australia

By Peakifi Editorial Team · Updated

This article provides general information only and does not constitute financial advice. For advice tailored to your situation, consult a licensed financial adviser. Learn more.

Contents

When you sell an investment property in Australia, any profit is subject to capital gains tax (CGT). For most investors, the 50% CGT discount substantially reduces the tax payable — but the interaction with depreciation deductions, the main residence exemption, and other rules makes property CGT more complex than shares.

How CGT Applies to Investment Property

CGT applies to:

  • Residential investment properties
  • Commercial properties
  • Vacant land (unless it becomes your main residence)
  • Holiday homes used as short-term rentals

Your principal place of residence (main home) is generally exempt from CGT — see Main Residence CGT Exemption.

How to Calculate CGT on an Investment Property

Cost base (what you can include):

  • Purchase price
  • Stamp duty and conveyancing fees
  • Legal fees (purchase)
  • Agent commission and advertising (sale)
  • Legal fees (sale)
  • Capital improvements (renovations, additions — not repairs)

You cannot include:

  • Costs already claimed as a tax deduction (e.g., repairs, interest)
  • Depreciation claimed under Division 43 and Division 40 (these reduce the cost base dollar-for-dollar)

Capital proceeds:

  • Sale price less agent commission and legal fees on sale (or net proceeds if these haven’t been deducted from cost base)

The Impact of Depreciation on Your Cost Base

This is one of the most commonly misunderstood aspects of investment property CGT. Every dollar of Division 43 (building allowance) and Division 40 (plant and equipment) depreciation you claim as a deduction reduces your cost base.

Example:

  • Property purchased for $500,000
  • Capital improvements: $50,000
  • Depreciation claimed over 10 years: $80,000
  • Adjusted cost base: $500,000 + $50,000 − $80,000 = $470,000
  • Sale price: $800,000
  • Capital gain: $800,000 − $470,000 = $330,000
  • 50% discount: $165,000 taxable gain

If you did not account for depreciation, you might incorrectly calculate a lower taxable gain.

The 50% CGT Discount on Property

If you held the property for more than 12 months, you can reduce the net capital gain by 50%. Most long-term property investors qualify.

Partial Main Residence Exemption

If the property was your main residence for part of the ownership period and an investment for the rest, a partial exemption applies. The taxable portion is calculated as:

Taxable fraction = (Days as investment property ÷ Total days owned)

See Partial Main Residence Exemption for the full calculation.

The Six-Year Absence Rule

If you move out of your home and rent it out, you may be able to treat it as your main residence for up to six years — even though you are not living there. This can result in the full CGT exemption applying when you sell, provided:

  • You do not have another property treated as your main residence simultaneously
  • The absence does not exceed six years

See The Six-Year CGT Absence Rule.

GST and Property

Selling a residential investment property is generally not subject to GST. However, selling new residential premises or commercial property may attract GST. If in doubt, consult a tax professional.

Frequently Asked Questions

Do I pay CGT when I sell an investment property? Yes, unless an exemption applies (such as the main residence exemption). CGT on investment property is calculated on the profit — proceeds minus cost base — with a 50% discount available if held for more than 12 months.

Does depreciation increase my CGT when I sell? Effectively, yes. Depreciation deductions reduce your cost base, which increases the capital gain when you sell. This is known as depreciation recapture through the CGT calculation.

Can I avoid CGT on an investment property? There is no legal way to eliminate CGT on an investment property sale unless it qualifies as your main residence or another exemption applies. However, strategies such as holding for 12+ months (discount), timing the sale in a lower-income year, or using carry-forward capital losses may reduce the impact.

This article provides general tax information for FY2025–26. For advice tailored to your situation, speak with a registered tax agent or accountant. Find one through the Tax Practitioners Board register.