Capital Gains Tax (CGT) is one of the most important taxes for Australian property investors to understand. Getting the timing and structure of a sale right can save you tens of thousands of dollars. This guide explains what triggers CGT, how it is calculated, and how to legally minimise it.
What Triggers Capital Gains Tax on a Property?
CGT is triggered when you sell or otherwise dispose of an investment property for more than you paid for it. It is not a separate tax — the capital gain is added to your taxable income in the year of sale and taxed at your marginal rate.
How Is the Capital Gain Calculated?
Capital gain = Sale price minus cost base. The cost base includes the original purchase price plus purchase costs (stamp duty, conveyancing, inspection fees) plus capital improvement costs (renovations, extensions — not repairs or maintenance).
The 50% CGT Discount
If you hold the property for more than 12 months before selling, you are entitled to a 50% CGT discount as an individual taxpayer. This means only half the capital gain is added to your taxable income. SMSFs in pension phase pay zero CGT. Companies do not receive the 50% discount.
| Scenario | Capital Gain | Taxable Amount | Tax at 37% Rate |
|---|---|---|---|
| Held under 12 months | $300,000 | $300,000 | $111,000 |
| Held over 12 months (individual) | $300,000 | $150,000 | $55,500 |
| Held in SMSF pension phase | $300,000 | $0 | $0 |
CGT Minimisation Strategies for Property Investors
- Hold for more than 12 months to access the 50% discount
- Sell in a low-income year — retirement, career break, or year with large deductions
- Maximise the cost base — ensure all purchase costs, stamp duty, legal fees and capital improvements are included
- Use SMSF for high-growth properties — 10% CGT in accumulation phase, 0% in pension phase
- Offset against capital losses — any capital losses from shares or other assets can be offset against property gains
GeeVee Verdict
CGT is manageable with the right structure and timing. The 50% discount alone halves your tax bill if you hold for more than 12 months. The most sophisticated investors use SMSF for their highest-growth properties to eliminate CGT entirely in retirement. Talk to a property-specialist accountant before selling any investment property.
Frequently Asked Questions
Is my principal residence subject to CGT?
Generally no. Your main residence is CGT-exempt if you lived in it for the entire period of ownership and did not use it to produce income. Partial exemptions apply if it was rented for part of the ownership period.
What is the CGT 6-year rule?
If you move out of your main residence and rent it out, you can treat it as your principal residence for CGT purposes for up to 6 years, provided you do not claim another property as your main residence simultaneously.
Do I pay CGT if I transfer a property to my spouse?
Transfers between spouses are generally treated as a CGT event at market value, though rollover relief may be available in certain circumstances such as marriage breakdown. Seek specific advice before any inter-spousal transfer.
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