Capital Gains Tax (CGT) & Property

33420 — Capital Gains Tax (CGT) & Property

Tax & Structuring (Technical) (33400)

Overview

Capital gains tax applies to the disposal of Australian property held on capital account, taxing the difference between the property’s cost base and its capital proceeds on disposal as assessable income in the year the relevant CGT event occurs. For property investors, capital gains tax is typically the largest single tax event across the ownership lifecycle, and its treatment is directly affected by holding structure, holding period, and the accuracy of cost base records maintained from acquisition through to disposal.

The Australian capital gains tax regime, contained principally in Parts 3-1 and 3-3 of the Income Tax Assessment Act 1997 (Cth), has applied a 50% discount to gains realised by Australian resident individuals and trusts on assets held for at least twelve months. For CGT events from 1 July 2027, the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 replaces the discount, for gains accruing from that date, with indexation of the cost base, and sets a 30% minimum tax on the capital gains of Australian resident individuals. Gains accrued before 1 July 2027 keep the discount, and individuals keep a 50% discount for new residential dwellings. A separate and materially important exemption applies to a taxpayer’s main residence, subject to conditions including the extent of income-producing use and the operation of the six-year absence rule for a former main residence that is rented out.

This node addresses the core mechanics of the capital gains tax regime as it applies to Australian property: the trigger event, cost base construction, the discount and the regime that replaces it from 1 July 2027, the main residence exemption, and the foreign resident capital gains withholding regime applicable to certain property transactions. It connects to the ownership structuring and deductibility content addressed elsewhere in this sub-series, since both materially affect the ultimate capital gains tax outcome on disposal.

Scope & Boundaries

This node covers:

The CGT event A1 disposal trigger, cost base and reduced cost base construction, the 50% CGT discount and its twelve-month holding period requirement, cost base indexation and the minimum tax that apply to gains accruing from 1 July 2027, the main residence exemption including partial exemption and the six-year absence rule, the foreign resident capital gains withholding regime, and the exclusion of foreign residents from the main residence exemption

This node does not cover:

Calculating a capital gains tax liability for any specific transaction
CGT treatment of property held by superannuation funds in detail
International or cross-border capital gains taxation → refer to the International Property Investment sub-series
Ownership structure selection → refer to Node 33440

Scope Note

This node describes the Australian capital gains tax framework applicable to property as at 1 October 2026. Capital gains tax outcomes are highly dependent on individual acquisition and disposal facts, cost base records, and entity type, and this content does not constitute tax advice. Readers should obtain advice from a registered tax agent before relying on any capital gains tax position for a specific transaction.

Key Concepts

CGT Event A1 — Disposal

CGT event A1, the most common capital gains tax event affecting property, occurs when ownership of a CGT asset changes, typically at the time a contract for sale is entered into rather than at settlement. The capital gain or loss is calculated as the difference between capital proceeds received and the asset’s cost base, and is included in assessable income for the income year in which the contract was entered into.

Cost Base Construction

The cost base of a property comprises five elements: the acquisition price, incidental costs of acquisition and disposal such as stamp duty and agent commissions, non-capital ownership costs in certain circumstances, capital expenditure that increases the asset’s value, and capital expenditure to preserve or defend title. Accurate cost base records maintained throughout the ownership period are essential to correctly calculating the capital gain on eventual disposal.

The 50% CGT Discount

Individuals and trusts that have held a CGT asset for at least twelve months before the relevant CGT event may reduce the assessable capital gain by 50% under Division 115 of the Income Tax Assessment Act 1997 (Cth). For CGT events from 1 July 2027, the discount applies only to the part of a gain accrued before that date, and to new residential dwellings held by individuals. Companies are not eligible for the general discount, which is a material consideration in ownership structure selection for property intended to be held for capital growth.

Main Residence Exemption

A capital gain or loss arising from the disposal of a dwelling that has been the taxpayer’s main residence throughout the ownership period is generally disregarded under Subdivision 118-B of the Income Tax Assessment Act 1997 (Cth). Partial exemption applies where the dwelling was used to produce assessable income during part of the ownership period, or was the main residence for only part of that period. The six-year absence rule permits a former main residence to be rented out for up to six years while retaining the exemption, provided no other dwelling is treated as the taxpayer’s main residence during that period. Foreign residents cannot claim the exemption for property sold after 30 June 2020 unless they meet the life events test, even if they were Australian residents for part of the ownership period.

Cost Base Indexation and the Minimum Tax from 1 July 2027

For Australian resident individuals and trusts, a gain accruing from 1 July 2027 on an asset held for at least twelve months is calculated by indexing the cost base for inflation, in place of the discount. An asset held on 1 July 2027 is treated as sold and reacquired immediately before that date, at market value or by an apportioning method set by the Minister; the gain accrued to that point is taxed when the asset is later disposed of, and keeps the 50% discount if it would have qualified. Australian resident individuals pay at least 30% tax on capital gains from 1 July 2027, with exemptions for recipients of listed income support payments. Individuals keep a 50% discount for new residential dwellings, and the additional discount for affordable housing continues. Indexation and the minimum tax do not apply to companies, superannuation funds, or foreign and temporary residents. Separately, and for every kind of owner, assets acquired before 20 September 1985 cease to be exempt for gains accruing from 1 July 2027.

Foreign Resident Capital Gains Withholding

Purchasers acquiring Australian real property from a foreign resident vendor, or from a vendor unable to provide an appropriate clearance certificate, are generally required to withhold a percentage of the purchase price and remit it to the Australian Taxation Office under section 14-200 of Schedule 1 to the Taxation Administration Act 1953 (Cth), as an integrity measure supporting the collection of tax from foreign resident vendors. For contracts signed from 1 January 2025, the rate is 15% of the purchase price and applies whatever the property’s value; from 1 July 2017 to 31 December 2024, it was 12.5% on property valued at $750,000 or more.

Regulatory & Legal Framework

Income Tax Assessment Act 1997 (Cth), Parts 3-1 and 3-3

Australian Taxation Office

Establishes the core capital gains tax regime, including CGT events, cost base rules and the 50% discount under Division 115. As amended by the Treasury Laws Amendment (Tax Reform No. 1) Act 2026 (Act No. 49 of 2026), it provides cost base indexation for gains accruing from 1 July 2027 and a 30% minimum tax on the capital gains of Australian resident individuals (Division 119).
Income Tax Assessment Act 1997 (Cth), Subdivision 118-B

Australian Taxation Office

Provides the main residence exemption, including partial exemption and the six-year absence rule for a former main residence.
Taxation Administration Act 1953 (Cth), Schedule 1, section 14-200

Australian Taxation Office

Establishes the foreign resident capital gains withholding regime applicable to acquisitions of Australian real property.
Corporations Act 2001 (Cth)

Australian Securities and Investments Commission

Relevant to the CGT treatment of property held indirectly through managed investment schemes and other regulated investment vehicles.

Practical Application

Capital gains tax is applied at the point of disposal but is prepared for throughout the ownership period. Owners and their accountants maintain cost base records from acquisition, tracking incidental costs and capital expenditure so that an accurate cost base is available when a disposal occurs. Purchasers of Australian real property must determine at settlement whether foreign resident capital gains withholding applies, requiring a clearance certificate to be obtained from a resident vendor to avoid withholding. Taxpayers relocating from a former main residence assess, before renting the property out, whether and for how long the six-year absence rule can preserve the main residence exemption.

Scenario	Application	Outcome
Individual investor sells, in 2026, a rental property held for four years	Accountant calculates the capital gain using the property’s cost base and applies the 50% general discount available to individuals under Division 115	Only half of the calculated capital gain is included in the investor’s assessable income for the year of disposal
Vendor of an investment property is unable to provide a clearance certificate confirming Australian residency	Purchaser’s conveyancer applies the foreign resident capital gains withholding requirement under section 14-200	15% of the purchase price is withheld at settlement (contract signed from 1 January 2025) and remitted to the Australian Taxation Office
Individual investor bought an established rental property in 2020 and sells it in 2030	Accountant measures the gain accrued to 30 June 2027, at market value immediately before 1 July 2027 or by the Minister’s apportioning method, and calculates the gain accrued after that date on an indexed cost base	The gain accrued before 1 July 2027 keeps the 50% discount; the later gain is taxed on its indexed amount
Owner-occupier moves out of their main residence and rents it to tenants for four years before selling	Tax agent applies the six-year absence rule to assess continued main residence exemption eligibility, confirming no other property was nominated as a main residence during the absence	The main residence exemption is preserved for the full ownership period, and no capital gains tax arises on disposal