Capital gains tax (CGT) is not a separate tax. It is the tax you pay on the profit (the capital gain) when you sell an asset like an investment property. The gain gets added to your assessable income for the financial year you sell, and you pay tax on it at your marginal rate.
If you bought a property for $500,000 and sold it for $700,000, your capital gain before adjustments is $200,000. But the actual taxable amount depends on your cost base and any discounts you qualify for.
The 50% CGT Discount
If you have owned the property for more than 12 months, you can halve the capital gain before adding it to your income. In the example above, you would only include $100,000 in your taxable income instead of the full $200,000. This discount applies to individuals and trusts, but not to companies.
Your Cost Base
The cost base is not just the purchase price. It includes stamp duty, legal fees on purchase, capital improvements you made during ownership (such as a new kitchen or bathroom renovation), and the costs of selling (agent commission, legal fees, marketing). The higher your cost base, the lower your taxable gain.
This is why keeping detailed records of every capital improvement matters. A bathroom renovation that cost $15,000 ten years ago could save you thousands in CGT when you sell.
Why It Matters for Landlords
CGT is often the single largest tax event in a property investor's life. The difference between a well-documented cost base and a poorly documented one can be tens of thousands of dollars in tax. Start tracking capital improvements from the day you settle on the property, not when you decide to sell.
propkt lets you record capital improvements against each property so your cost base is always up to date. For a deeper look at CGT strategies, see our guide to capital gains tax on investment property.