Capital Gains Tax on Investment Property in 2026: What Landlords Need to Know

This article is general information only and does not constitute financial or tax advice. Consult a qualified tax professional for advice specific to your situation.

Selling an investment property is one of the biggest financial transactions most landlords will ever make. It is also one of the most tax-significant. Get your numbers right and the CGT bill is manageable. Miss a few deductible costs from your records and you could overpay by thousands.

Here is a plain-language guide to how capital gains tax works on Australian investment property, and what you can do to reduce your bill legitimately.

What Is Capital Gains Tax?

Capital gains tax is not a separate tax. It is simply the inclusion of a capital gain in your assessable income for the year you sell. When you sell your investment property for more than you paid for it, that profit (the capital gain) gets added to your ordinary income and taxed at your marginal rate.

The ATO treats the sale as happening on the date contracts are exchanged, not on the settlement date. That matters if you are thinking about timing a sale around the end of the financial year.

How Your Capital Gain Is Calculated

The starting point is straightforward: sale price minus cost base equals capital gain.

Your sale price is the proceeds you actually receive: the contracted purchase price, minus the costs of sale (agent's commission, legal fees, advertising).

Your cost base is more involved, and this is where careful record-keeping pays off.

Building Your Cost Base

The cost base is not just what you paid when you bought the property. It includes every legitimate capital cost you have incurred over your ownership.

The five elements the ATO allows are:

• The original purchase price
• Acquisition costs: stamp duty (use the stamp duty calculator to estimate yours), legal fees, building inspection reports, mortgage establishment fees
• Capital improvements: renovations, extensions, and structural works that increased the value of the property (not repairs, which are immediately deductible; see our guide to rental property tax deductions in Australia). Note that some items like appliances and fixtures may qualify for depreciation deductions during ownership rather than being added to your cost base.
• Costs of ownership that were not otherwise deductible: things like the initial repairs trap, spending to fix problems that existed at purchase
• Costs of disposal: agent commissions, legal fees, and advertising when you sell

Many landlords underestimate their cost base simply because they did not keep records over the full ownership period. A renovation ten years ago, stamp duty paid at settlement, legal fees from a tenancy dispute. All of these can reduce your taxable gain if you can substantiate them. Without receipts and records, you cannot claim them.

The 50% CGT Discount

If you have owned the property for more than 12 months before you sell, you are entitled to a 50% CGT discount as an individual investor. This halves the capital gain that gets added to your assessable income.

For example: you buy a property for $500,000 (including stamp duty and buying costs), spend $40,000 on a kitchen renovation, and sell for $800,000 (after agent fees). Your capital gain is $260,000. With the 50% discount, only $130,000 gets added to your taxable income for the year.

The discount does not apply if you sell within 12 months of purchase, which is one reason why holding periods matter for investment property.

Calculate Your Capital Gains Tax

Plug in your own numbers below to estimate the CGT on your property sale, including the 50% discount and your marginal tax rate.

The calculator gives you a quick estimate based on your inputs. Your actual CGT liability may differ depending on other income, offsets, and individual circumstances, so treat the result as a starting point for your conversation with your accountant.

The Main Residence Exemption

Your primary home is generally exempt from CGT entirely. The complication arises when a property has been both your home and a rental at different points in time, which is more common than you might think.

If you lived in a property and then turned it into a rental, the CGT exemption applies proportionally to the period you lived there (before it became income-producing). You will need to calculate the gain that accrued while the property was a rental and include only that portion.

The calculation uses the market value of the property at the time it first became available for rent as a reference point, which is why getting a valuation done at the point you convert your home to an investment property is important. You cannot go back and reconstruct that figure years later.

The Six-Year Absence Rule

There is a useful concession worth knowing about. If you move out of a property that was your main residence and start renting it out, you can continue to treat it as your main residence for CGT purposes for up to six years, provided you do not nominate another property as your main residence during that period.

If you sell within that six-year window, the property may be fully or partially exempt from CGT, even though you were renting it out the whole time.

A few conditions apply: you must have genuinely lived there as your main residence before renting it out, and you can only have one main residence at a time. If you buy another home, the clock stops on the absence rule for the rental.

This rule is particularly valuable for landlords who moved out of their first home rather than sold it. Talk to your accountant about whether it applies to your situation before you sell.

Timing the Sale

Because the capital gain is added to your assessable income in the year you exchange contracts, a large gain can push you into a higher tax bracket for that year. Selling in a year when your other income is lower (the year you retire, for example, or a year when you take extended leave) can reduce the marginal rate that applies to the gain.

Conversely, if you are planning to renovate before selling, finishing those works before exchanging contracts means the cost can be added to the cost base. Work completed after exchange does not help you.

Neither strategy justifies artificial delay or an unnecessary renovation, but these timing considerations are worth raising with your accountant before you commit to a sale timeline.

Why Your Records Matter So Much for CGT

Unlike annual rental income and expenses (which your accountant helps you reconcile each July), CGT records span the entire ownership period. A receipt from the year you installed a new bathroom, stamp duty from settlement, legal fees from a tenancy dispute five years ago: all of these can legitimately reduce your taxable gain, but only if you can prove you incurred them.

The ATO can audit CGT calculations for up to four years after lodgement, and for longer in some circumstances. That means receipts for capital costs need to be kept not just for the usual five-year period but for the life of the property plus the standard retention period after sale.

propkt tracks every expense you log against each property throughout your ownership, and you can export a full history at any time, including the capital costs that will form part of your cost base when you eventually sell. The groundwork you do now, keeping receipts and categorising correctly as you go, is what protects you on the day you exchange contracts.

propkt tracks your cost base, capital improvements, and holding period for every property, so when it's time to sell, your CGT estimate is ready. Get started free.

Talk to your accountant about how CGT applies to your specific property and circumstances before you make any decisions.