Capital Gains Tax on Property Australia 2026 — Post-Budget Guide

Updated 14 May 2026. This guide has been rewritten to reflect the 12 May 2026 federal budget reform to the 50% CGT discount. The new section "What the 2026 Budget Changed" below covers the cost-base indexation rules, the 30% minimum tax, and the transitional arrangements for assets owned before 1 July 2027.

Capital gains tax is one of those topics that makes most people's eyes glaze over — until they sell a property and discover they owe the ATO tens of thousands of dollars they did not expect. Or, on the flip side, they sell their home and discover the profit is completely tax-free.

Whether you are a first home buyer wondering if you will ever owe CGT, a rentvester weighing up the tax implications, or an investor about to sell — this guide covers everything you need to know about capital gains tax on property in Australia in 2026 under the new post-budget rules. We explain what CGT is, how to calculate it step by step (with worked examples), the existing 50% CGT discount (still in force until 1 July 2027), the new cost-base indexation system that replaces it, the main residence exemption, every legal way to reduce or avoid CGT, investment property specifics, the 2025-26 tax rates, and exactly what the 12 May 2026 Federal Budget changed for property investors.

What Is Capital Gains Tax (CGT)?

Capital gains tax is the tax you pay on the profit you make when you sell an asset — including property — for more than you paid for it. The "gain" is the difference between what you paid (the cost base) and what you sold it for (the sale proceeds), minus any eligible costs along the way.

Here is the crucial thing to understand: CGT is not a separate tax. There is no special "capital gains tax rate" in Australia. Instead, the net capital gain is added to your regular taxable income in the financial year you sell the asset, and the total is taxed at your marginal tax rate. This means the amount of CGT you pay depends on how much other income you earn in the year you sell.

CGT applies to any asset acquired after 20 September 1985 (the date CGT was introduced in Australia). For property, this means virtually all property sold today is subject to CGT rules — unless an exemption applies.

And that exemption — the main residence exemption — is the single most important thing for home buyers to understand. We cover it in detail below.

The 50% CGT Discount — How It Works in 2026

The 50% CGT discount is one of the most significant tax concessions for property investors in Australia — and one of the most searched topics around CGT. Here is exactly how it works.

If you hold an asset (including an investment property) for more than 12 months before selling, you only include 50% of the capital gain in your taxable income. The other 50% is simply disregarded — you never pay tax on it.

Example: You make a $200,000 capital gain on an investment unit you held for 3 years. With the 50% CGT discount, only $100,000 is added to your taxable income. At a 37% marginal rate, that is $37,000 in tax instead of $74,000 — a saving of $37,000 just for holding the property for more than a year.

This discount is why property investors almost never sell within the first 12 months. The tax difference is enormous.

Who qualifies for the CGT discount?

• Australian resident individuals — the standard 50% discount applies
• Trusts — the 50% discount is available (distributed to beneficiaries)
• Complying superannuation funds — receive a 33.33% discount (not 50%)
• Companies — do not qualify for any CGT discount. This is one reason most individual property investors hold in their personal name or a trust rather than a company
• Foreign residents — lost access to the 50% discount for CGT events after 8 May 2012, and from 1 July 2025 will lose the discount on all gains (even those accrued while they were residents)

Important — the 12 May 2026 budget changed the 50% CGT discount. The federal budget delivered on Tuesday 12 May 2026 confirmed that the flat 50% CGT discount will be replaced by a cost-base indexation system, with a 30% minimum tax floor on net capital gains, from 1 July 2027. The existing 50% discount continues to apply to all gains that accrue before 1 July 2027. Anyone selling between now and 1 July 2027 still uses the 50% discount in the calculation below. For the new rules, transitional arrangements, and the new-build election, see the "What the 2026 Budget Changed" section further down this guide.

What the 2026 Budget Changed (1 July 2027 transition)

The 12 May 2026 federal budget delivered three substantive changes to capital gains tax on residential investment property, all kicking in on the same date: 1 July 2027. Here is each one in plain English.

1. The 50% CGT discount is being replaced by cost-base indexation

From 1 July 2027, the flat 50% discount on capital gains held longer than 12 months is replaced for property investors. In its place: the original purchase price (and other cost-base elements) is indexed to inflation before the capital gain is calculated. The taxable gain becomes "sale price minus inflation-adjusted cost base." This brings the system closer to the pre-1999 method that ran in Australia for over a decade before the 50% discount was introduced.

Whether you end up paying more or less tax under indexation depends entirely on inflation over your hold period. Over short hold periods (1-3 years) or in low-inflation environments, the new method generally produces a higher taxable gain than the 50% discount. Over longer holds (10+ years) in higher-inflation environments, indexation can be more generous than the old discount. The numbers swing both ways — there is no universal winner.

2. A 30% minimum tax applies to net capital gains

From 1 July 2027, net capital gains are subject to a 30% minimum tax floor. If your normal marginal tax rate would tax the gain at less than 30%, the floor lifts your effective rate to 30%. If your marginal rate is already 30% or higher, the floor is not relevant — you pay at your marginal rate as usual. The floor primarily affects investors on lower or middle incomes who used to benefit from stacking the 50% discount with a sub-30% marginal rate.

3. Transitional rule for assets owned before 1 July 2027

If you owned an investment property before 1 July 2027 and sell it after that date, the rules are split:

• Capital gain accruing before 1 July 2027 uses the existing 50% CGT discount
• Capital gain accruing from 1 July 2027 onwards uses cost-base indexation and is subject to the 30% minimum tax

The split is calculated by valuing the property on 1 July 2027. Practically, this means a market valuation on or close to 30 June 2027 will be important paperwork for any investor planning to hold across the transition date.

4. New builds can choose

For residential investment property that is newly constructed (and within a defined post-purchase window), investors will have an election: continue under the 50% CGT discount, or apply the new indexation + 30% minimum tax method. This is a deliberate policy lever to maintain investor incentive to fund new housing supply.

5. Pensioner exemption from the minimum tax

Income support recipients — including Age Pension, Disability Support Pension, and other defined Centrelink income support payments — are exempt from the 30% minimum tax floor. The exemption only applies to the floor; the underlying indexation calculation still applies.

What this means for first home buyers and rentvesters

The main residence exemption is unchanged. Your own home remains 100% CGT-free, no matter the rules in force when you sell. If you are a rentvester reading this and thinking about an established investment property: from now on the post-12-May-2026 negative-gearing changes apply on the income side (no salary offset on losses), and the post-1-July-2027 CGT changes apply on the exit side. Both reforms steer investor capital toward new builds, which retain the existing tax treatment. For the income-side reform see our negative gearing explained guide.

How to Calculate Capital Gains Tax — Step by Step

If CGT applies (for example, you are selling an investment property), here is how to calculate it:

Step 1: Work out your cost base

The cost base is everything you paid to buy, hold, improve, and sell the property. This is not just the purchase price — it includes five categories of costs (we break these down in the next section).

Step 2: Calculate the capital gain

Sale price minus cost base = capital gain.

If the result is negative, you have a capital loss — which can be carried forward to offset future capital gains (but cannot be deducted against your salary or wage income).

Step 3: Apply the 50% CGT discount (if eligible)

If you held the property for more than 12 months, multiply the capital gain by 50%. Only this discounted amount is taxable.

Step 4: Add to your taxable income

The net capital gain (after discount) is added to your other taxable income for the financial year — salary, rental income, dividends, and everything else.

Step 5: Pay tax at your marginal rate

The total taxable income is taxed at your marginal rate using the standard ATO tax brackets (see the CGT rates table below).

Worked Example — Perth Investment Property ($550K)

Let us walk through a realistic 2026 scenario step by step.

The situation: Sarah bought a 2-bedroom investment unit in Perth for $550,000 in July 2021. She sells it in April 2026 for $750,000. Her taxable salary income in 2025-26 is $95,000.

Step 1: Calculate the cost base

Step 2: Calculate the capital gain

$750,000 − $607,065 = $142,935

Step 3: Apply the 50% CGT discount

Sarah held the property for nearly 5 years (more than 12 months), so she qualifies for the 50% discount.

$142,935 × 50% = $71,468 (net capital gain)

Step 4: Add to taxable income

Sarah's salary: $95,000 + net capital gain: $71,468 = $166,468 total taxable income.

Step 5: Calculate the tax

Using 2025-26 tax rates:

• $0 – $18,200: nil
• $18,201 – $45,000: $4,288
• $45,001 – $135,000: $27,000
• $135,001 – $166,468: $31,468 × 37% = $11,643

Total tax on $166,468 = $42,931 + Medicare levy ($3,329) = $46,260

Tax on salary alone ($95,000) would be approximately $22,967 (incl. Medicare).

So the additional tax attributable to the capital gain is approximately $23,293.

Without the 50% CGT discount, Sarah would have paid tax on the full $142,935 gain — roughly $46,000 in additional tax. The discount saved her approximately $23,000.

This is real money — and it is the reason understanding CGT before you invest is so important. Use our borrowing power calculator to see what you could afford for an investment property.

Cost Base — The Five Categories You Can Include

Your cost base is the most important number in any CGT calculation, because every dollar you can legitimately include reduces your capital gain and therefore your tax. The ATO recognises five categories of cost base elements:

1. Acquisition costs

The purchase price itself, plus stamp duty, conveyancing and legal fees on purchase, building and pest inspections, loan application fees (if specifically tied to the property purchase), and any other costs directly related to acquiring the asset.

2. Incidental costs of acquisition and disposal

Real estate agent commission, advertising and marketing costs on sale, auctioneer fees, conveyancing and legal fees on sale, valuation costs (if required for the transaction), and costs of transferring title.

3. Costs of owning the asset (non-deductible only)

This is where many investors miss out. Only costs that were not already claimed as rental deductions can be added to the cost base. For investment properties where you have claimed annual deductions for council rates, insurance, interest, and property management fees — those costs cannot be included again in the cost base. However, if you held a vacant block of land (not income-producing), holding costs like council rates and interest may be added to the cost base.

4. Capital improvement costs

Renovations and improvements that add value to the property — a new kitchen, bathroom renovation, adding a deck, split-system installation, new flooring. These are capital expenses (not repairs) and are added to the cost base. The distinction matters: replacing a broken window is a repair (deductible annually); installing double-glazed windows throughout the property is a capital improvement (added to cost base).

5. Costs of preserving or defending title

Legal costs to establish or defend your ownership of the property — boundary disputes, title defect remediation, survey costs. These are uncommon but can be significant when they arise.

Tip: Keep every receipt and record from the day you buy until the day you sell. Many investors lose thousands in unnecessary CGT because they cannot prove expenses that would have increased their cost base. A simple folder — physical or digital — with all property-related receipts will save you money when you sell.

Main Residence Exemption and CGT Exemptions

The main residence exemption (also called the principal place of residence exemption or PPOR exemption) is the provision that makes your home completely CGT-free when you sell. It is the most valuable tax concession available to ordinary Australians.

Conditions for the full exemption

To get the full main residence exemption (zero CGT on the entire gain), all of the following must be true:

• The property has been your main residence for the entire period you owned it
• You have not used it to produce income (renting out a room, Airbnb, home business with a dedicated space)
• The land is under 2 hectares
• You have not claimed the main residence exemption on another property at the same time

If you meet all these conditions, the entire profit is tax-free — no matter how large. You could buy a home for $500,000, live in it for 20 years, and sell it for $2,000,000 — and the entire $1,500,000 profit is CGT-free. No other investment in Australia offers this level of tax protection.

The 6-year absence rule

If you move out of your home — for example, to travel, relocate for work, or move in with a partner — you can continue to treat it as your main residence for CGT purposes for up to 6 years, even if you rent it out during that period. This is called the "6-year absence rule."

The catch: during this 6-year period, you cannot claim the main residence exemption on any other property. If you buy and move into a new home, you need to choose which property is your main residence — you cannot have two.

If you are away for more than 6 years and do not move back, you lose the main residence exemption for the period beyond 6 years, and a partial CGT liability applies. If you move back within 6 years, even briefly, the 6-year clock resets.

Partial exemptions

If you lived in the property for part of the time and rented it out for part, or if you used part of the property for income-producing purposes, you may get a partial exemption. The ATO calculates this based on the proportion of time (or space) the property was your main residence versus income-producing.

Other CGT exemptions

• Deceased estates — if you inherit a property that was the deceased's main residence, you may be exempt from CGT provided you sell within 2 years. If you keep it longer, CGT may apply on gains from the date of death
• Pre-CGT assets — property acquired before 20 September 1985 is exempt (increasingly rare for residential property)
• Relationship breakdown — property transfers between spouses/partners as part of a court order or binding financial agreement are CGT-free (the receiving spouse inherits the original cost base)

How to Avoid or Minimise Capital Gains Tax Legally

You cannot eliminate CGT on an investment property, but there are several legal strategies to reduce it significantly:

1. Hold for more than 12 months

This is the single most impactful strategy. The 50% CGT discount halves your taxable gain. Never sell an investment property at 11 months if you can wait until 13 months — the tax saving is substantial.

2. Maximise your cost base

Include every legitimate expense: stamp duty, legal fees, building inspections, capital improvements, agent commission, advertising, styling. A $20,000 higher cost base at a 37% marginal rate saves you $3,700 in tax (or $7,400 without the discount).

3. Time the sale for a low-income year

If possible, sell in a financial year when your other income is lower — for example, if you or your partner are on parental leave, studying, between jobs, or semi-retired. A lower base income means a lower marginal rate on the capital gain.

4. Offset gains with capital losses

If you have capital losses from other investments (shares, crypto, another property), these can be offset against your capital gain before tax is calculated. Capital losses can also be carried forward indefinitely until you have gains to offset them against.

5. Consider the main residence exemption strategically

If you are a rentvester — owning an investment property while renting where you live — consider whether moving into the investment property before selling could qualify it for a partial main residence exemption. This requires genuine residency (not just changing your postal address) and has specific ATO rules. Talk to a tax professional before attempting this strategy.

6. Use the 6-year absence rule

If you move out of your home to travel or relocate, maintain the main residence exemption for up to 6 years rather than buying a new PPOR immediately. This can protect a substantial gain from CGT.

7. Contribute to super instead of selling

Rather than selling an investment property to fund retirement, consider other income sources. Once you sell, the gain is crystallised and taxed. If you can hold the property in retirement when your income (and therefore marginal rate) is lower, the CGT bill will be smaller.

8. Get a depreciation schedule

While depreciation is an annual deduction (not a cost base item), it reduces your taxable rental income each year — giving you tax savings during the holding period. Be aware that depreciation deductions reduce your cost base for CGT purposes (the "clawback" effect), but the annual tax savings typically outweigh the eventual CGT impact, especially with the 50% discount.

For more on managing investment property tax, see our guide to negative gearing — the two strategies work together.

Capital Gains Tax on Investment Property

Investment property is the most common CGT trigger for individual Australians. Here are the key things to know if you own or are considering an investment property:

Rental income deductions vs cost base

Expenses you claim as annual rental deductions (interest, rates, insurance, property management, repairs) cannot also be included in the cost base. You get the deduction each year or the cost base inclusion on sale — not both. Capital improvements (renovations, additions) that you did not claim as annual deductions can be added to the cost base.

Depreciation and CGT

If you claim building depreciation (capital works deduction under Division 43 — typically 2.5% per year of the construction cost), the amount you have claimed is subtracted from your cost base. This means claiming depreciation can increase your eventual CGT liability. However, the maths almost always favours claiming depreciation: the annual tax savings at your full marginal rate outweigh the eventual CGT impact, which is halved by the 50% discount.

Selling costs you can include

When selling an investment property, include these in your cost base: agent commission (typically 2-2.5% of sale price), conveyancing/legal fees, advertising and marketing, styling and photography, auctioneer fees, and any capital works done to prepare the property for sale (not cleaning or repairs — capital works only).

Negative gearing and CGT

Many investors use negative gearing — making a rental loss each year that reduces their taxable income — with the expectation that capital growth will more than compensate when they sell. The CGT on sale is the "payback" for years of tax deductions. The strategy works when: the property grows strongly in value, you hold for more than 12 months (50% discount), and you are in a high tax bracket during the holding period (maximising the value of annual deductions). Use our borrowing power calculator to model what you could afford, then talk to a broker about structuring your loan.

Capital Gains Tax Rates 2025-26

Remember — there is no separate "CGT rate." Your net capital gain is added to your taxable income and taxed at your marginal rate. Here are the 2025-26 Australian tax brackets:

Plus 2% Medicare levy on total taxable income.

What this means for CGT

If your salary is $90,000 (in the 30% bracket) and you add a $60,000 net capital gain, your total taxable income becomes $150,000 — pushing the top portion into the 37% bracket. The capital gain is effectively taxed at a blend of 30% and 37%, depending on how much falls in each bracket.

This is why timing matters. If you can sell in a year when your salary income is $50,000 instead of $90,000, more of the capital gain stays in the 30% bracket instead of climbing into 37% or 45%.

CGT for different entity types

May 2026 Federal Budget — CGT Changes

The May 2026 Federal Budget was closely watched by property investors. Here is what changed — and what did not:

What did NOT change

• The 50% CGT discount — remains at 50% for Australian resident individuals. Despite years of speculation about reducing it to 25%, neither major party has moved to change it
• The main residence exemption — your home remains completely CGT-free. No caps, no changes
• Negative gearing — remains fully available for investment property expenses. See our negative gearing guide for details
• The 6-year absence rule — unchanged

What DID change or is changing

• Foreign resident CGT rules (from 1 July 2025): Foreign residents now lose the 50% CGT discount entirely — including for gains accrued while they were Australian residents. The main residence exemption is also now limited for foreign residents (a 3-year window to sell after becoming non-resident)
• Build-to-rent concession: The government has reduced the withholding tax rate on build-to-rent developments to 15% to encourage institutional investment in rental housing supply
• Stage 3+ tax cuts: While not a CGT change specifically, the revised tax brackets (30% rate up to $135,000) mean that moderate capital gains may be taxed at a lower effective rate than in previous years

The bottom line for Australian resident property investors: CGT rules remain stable heading into 2026-27. There is no imminent threat to the 50% discount or the main residence exemption. However, tax policy can change with any budget — always plan for the rules as they are today, not as you hope they will be.

CGT and Your First Home — Why This Matters

Here is the bottom line for first home buyers, and it is worth repeating because it is genuinely one of the most important financial concepts you will encounter:

Your main residence is CGT-free. No other investment in Australia has this advantage.

If you buy a $600,000 home today and it grows to $900,000 over 10 years, you pocket the entire $300,000 profit tax-free when you sell. If instead you had bought a $600,000 investment property and rented it while continuing to rent yourself, that same $300,000 gain would be subject to CGT — even with the 50% discount, you could pay $50,000+ in tax.

This is the single strongest argument for buying your own home before investing. The CGT-free treatment of your main residence, combined with government grants (up to $30,000 for new builds), stamp duty concessions, and guarantee schemes (as little as 2% to 5% deposit with no LMI), makes home ownership the most tax-advantaged wealth-building strategy available to Australians.

Some people consider "rentvesting" — buying an investment property while continuing to rent. This strategy has merit in some situations, but you need to understand the CGT implications: the investment property will be taxable when sold, while a home you live in will not. For most first home buyers, the maths favours buying your own place first. Not sure how much deposit you need? See our guide on how much deposit to buy a house.

Not sure what you can afford? Use our borrowing power calculator to see your numbers, then talk to a broker about the best path forward for your situation.

Disclaimer: This guide is general information only and does not constitute personal tax or financial advice. CGT rules are complex and your individual circumstances may differ. Always consult a qualified tax professional or financial adviser before making decisions based on tax implications. Tax rates and rules are current as at April 2026.

Frequently Asked Questions

Do I pay capital gains tax on my first home?

No — if you buy your first home and live in it as your main residence, the profit you make when you sell is completely tax-free under the main residence exemption. There is no cap on the amount. This exemption applies regardless of how much the property has grown in value, as long as it has been your primary place of residence for the entire time you owned it and you have not used it to produce income (such as renting out rooms).

How much is capital gains tax in Australia?

There is no single CGT "rate" — capital gains are added to your taxable income and taxed at your marginal tax rate. For most Australians in 2025-26, this is 30% ($45,001-$135,000) or 37% ($135,001-$190,000), plus 2% Medicare levy. However, if you held the asset for more than 12 months, you get a 50% discount — so only half the gain is taxed. For example, a $100,000 gain on a property held for 2 years is taxed on $50,000 (after the 50% discount) at your marginal rate.

What is the 50% CGT discount?

If you hold a property (or any CGT asset) for more than 12 months before selling, only 50% of the capital gain is included in your taxable income. The other 50% is disregarded entirely. This discount applies to Australian resident individuals and trusts but not companies or foreign residents (from 1 July 2025). It is the primary reason property investors hold assets for at least 12 months before selling — the tax difference can be tens of thousands of dollars.

How do I calculate capital gains tax on an investment property?

Subtract your cost base (purchase price + stamp duty + legal fees + capital improvements + selling costs) from the sale price to get your capital gain. If you held the property for more than 12 months, apply the 50% discount. Add the net capital gain to your other taxable income for the year. The total is taxed at your marginal tax rate. See our worked example above for a step-by-step calculation with real numbers.

How do I avoid capital gains tax on property?

The most straightforward way is to live in the property as your main residence — the main residence exemption makes the gain completely tax-free. For investment properties, you cannot avoid CGT entirely, but you can minimise it by: holding for more than 12 months (50% discount), maximising your cost base (include all eligible costs), timing the sale for a lower-income financial year, offsetting with capital losses from other investments, and using the 6-year absence rule if applicable. Never make property decisions solely based on tax — the property fundamentals should always come first.

What is included in the cost base for CGT?

The cost base includes five categories: (1) acquisition costs — purchase price, stamp duty, legal fees, inspections; (2) incidental costs of acquisition and disposal — agent commission, advertising, conveyancing on sale; (3) non-deductible ownership costs — only costs NOT already claimed as rental deductions; (4) capital improvements — renovations, additions, structural upgrades; and (5) costs to preserve or defend title. Every dollar added to the cost base reduces your capital gain and therefore your tax.

Is the CGT discount changing in 2026?

Yes. The 12 May 2026 Federal Budget announced that the flat 50% CGT discount on residential investment property will be replaced from 1 July 2027 by a cost-base indexation system, with a 30% minimum tax floor on net capital gains. The existing 50% discount continues to apply to all gains that accrue before 1 July 2027. For assets owned across the transition date, the gain is split: pre-1 July 2027 portion uses the 50% discount, post-1 July 2027 portion uses indexation plus the 30% floor. New builds can elect between the two methods, and income-support recipients are exempt from the 30% floor. Foreign residents lost access to the 50% discount from 1 July 2025 (unchanged by the 2026 budget).

What happens to CGT when you die?

There is no CGT when a property passes to a beneficiary through a deceased estate — the transfer itself is CGT-free. However, when the beneficiary eventually sells the property, CGT may apply. If the property was the deceased's main residence, the beneficiary has 2 years to sell it CGT-free. After 2 years, CGT applies on gains from the date of death. If the property was an investment, the beneficiary inherits the deceased's original cost base and CGT applies on the full gain from original purchase to eventual sale.