A Beginner’s Guide to Capital Gains Tax

Many investors forget about CGT until it’s too late. A little awareness now can mean a lot more money in your pocket later.

1. What Is Capital Gains Tax (CGT)?

Capital Gains Tax (CGT) isn’t a separate tax in its own right—it’s part of your income tax. Whenever you dispose of an asset (by selling, gifting, or transferring it), you may trigger a “CGT event.” If you sell it for more than it cost you, the difference is called a capital gain, and that gain is added to your taxable income for the financial year.

CGT applies to most assets acquired after 20 September 1985, including shares, collectibles, business assets, and property. However, your main residence, or Principal Place of Residence (PPR), is generally exempt from CGT. This is an important distinction: while your home usually attracts no CGT, an investment property almost always does.

2. CGT on Investment Property

Investment property is one of the most common assets subject to CGT, so let’s break down how it works.

2.1 How the Capital Gain Is Calculated

The starting point is working out the capital proceeds (what you received from the sale) and subtracting the cost base (what it cost you to acquire, hold, and improve the property). The cost base includes:

• Purchase price

• Stamp duty

• Legal and conveyancing fees

• Loan establishment costs (in some cases)

• Renovation and improvement costs

• Selling costs such as agent fees and advertising

  
  

Depreciation that has been claimed over the years may need to be added back into the calculation. The formula is straightforward:

Capital Gain = Capital Proceeds – Cost Base

If the result is negative, you’ve made a capital loss, which can be used to offset other capital gains now or carried forward to offset gains in future years.

2.2 The 50% CGT Discount

Australian resident individuals enjoy a valuable concession: if you hold an asset for at least 12 months, you may be eligible for a 50% CGT discount. That means you only pay tax on half of the gain.

For example, if you make a $100,000 gain on the sale of an investment property you’ve owned for more than a year, you’ll only need to include $50,000 in your taxable income.

It’s worth noting that:

• Companies are not eligible for the discount.

• Complying super funds can access a one-third (33.3%) discount instead.

• If you sell within 12 months, no discount applies.

  
  

2.3 Adding the Gain to Your Taxable Income

Your net capital gain—after applying any capital losses and the 50% discount—is added to your other taxable income. It’s taxed at the same rates as your salary, wages, or business income.

That means the amount of tax you pay depends entirely on your marginal tax rate, and large gains can push you into higher tax brackets for that financial year. On top of the standard tax rates, you also need to factor in the Medicare levy of 2%.

3. Marginal Tax Rates for 2026–27

From 1 July 2026, the following personal tax rates will apply in Australia (excluding the 2% Medicare levy):

Taxable Income (AUD)	Tax Rate
$0 – $18,200	0%
$18,201 – $45,000	15%
$45,001 – $135,000	30%
$135,001 – $190,000	37%
$190,001 and over	45%

4. Example: Calculating Captial Gains Tax on an Investment Property

Let’s run through a simplified example.

• Purchase price (including costs): $500,000

• Sale price: $800,000

• Capital Gain = $800,000 – $500,000 = $300,000

• Held longer than 12 months → eligible for 50% discount

• Discounted Capital Gain = $300,000 ÷ 2 = $150,000

  
  

This $150,000 is added to your taxable income. If you earned $80,000 from your job, your taxable income for the year would become $230,000. That would push you into the higher tax brackets, meaning a significant portion of the gain would be taxed at 37% or even 45%, plus Medicare levy.

5. When the CGT Discount Doesn’t Apply

The 50% discount doesn’t apply in some circumstances:

• You held the property for less than 12 months.

• You’re a company (companies never get the discount).

• You’re a foreign or temporary resident (subject to specific rules and limited access).

• The asset was acquired through certain business restructures or reorganisations that don’t qualify.

  
  

6. Strategies and Planning Considerations

Managing CGT can make a huge difference to your after-tax outcome. Here are some common strategies:

1. Hold for 12 months or longerSelling too early can double the tax bill compared to holding on just long enough to access the 50% discount.

2. Offset capital gains with capital lossesIf you’ve made losses on shares or other investments, these can reduce the taxable capital gain.

3. Timing the saleSince the gain is added to your income, the timing of a sale matters. If you expect your other income to be lower in a particular year (for example, due to retirement, maternity leave, or a career break), selling in that year could reduce your tax bill.

4. Record keepingKeep meticulous records of all purchase and improvement costs. Missing receipts could mean missing out on legitimate deductions, inflating your taxable gain.

5. Entity structuringDifferent ownership structures (individual, company, trust, super fund) can have very different CGT outcomes. Choosing the right one depends on your broader financial situation.

   
   

7. Main Residence vs Investment Property

As mentioned earlier, your Principal Place of Residence (PPR) is generally exempt from CGT. However, there are exceptions:

• If you use your home to produce income (for example, renting out part of it), part of the gain may be taxable.

• If you move out and rent your home, a six-year absence rule may apply, allowing you to still treat it as your main residence in certain circumstances.

  
  

By contrast, investment properties do not attract the main residence exemption. That means when you sell, you need to be prepared for CGT unless specific concessions apply.

8. Key Takeaways

• CGT is part of income tax and applies when you dispose of an investment property.

• The gain is the difference between the sale proceeds and your cost base.

• If you’ve owned the property for more than 12 months, you may be eligible for a 50% discount.

• Your taxable capital gain is added to your income and taxed at marginal rates, which will change in 2026.

• Your main residence is generally exempt, but investment properties are not.

• Smart planning and good record keeping can significantly reduce your CGT liability.

  
  

Final Thoughts

Capital Gains Tax is one of the most significant considerations when selling an investment property. While the rules can seem complex, the key factors are relatively straightforward: how long you’ve owned the property, whether you can access the 50% discount, and how the gain interacts with your overall taxable income.

At Etairos, we understand how CGT implications fit into your broader financial strategy. Whether you’re considering selling an investment property or simply planning for the future, having the right advice can make a big difference.

General Advice Warning: The information above is general in nature and does not take into account your individual objectives, financial situation, or needs. You should consider whether the information is appropriate for your circumstances and seek professional advice before making any financial decisions.