Capital gains tax on investment property Australia - a plain English guide for 2026

Capital gains tax is the tax event most investors spend years building toward - and the one they least understand until they are staring down a large bill after a sale. Here is how CGT actually works on investment property in Australia, with real Brisbane examples and the strategies that reduce your liability.

Capital gains tax is not actually a separate tax in Australia. When you sell an investment property for more than you paid for it, the profit - the capital gain - is added to your assessable income for that financial year and taxed at your marginal rate. What makes it manageable is the 50% discount available to individual investors who hold for more than 12 months, and the cost base which can include far more than just the purchase price.

In 2026, CGT is also in the headlines for another reason: the federal government is examining a potential reduction of the 50% discount ahead of the May 2026 budget. This guide covers how the current rules work, what the 50% discount means in practice, what your cost base should include, and what the proposed changes could mean if they proceed.

How CGT works - the fundamentals

When you sell an investment property, the process is straightforward in principle. Your capital gain is the sale price minus your cost base. Your cost base is not just the purchase price - it includes all the qualifying costs associated with acquiring, holding, and selling the property. Once you have calculated your net capital gain, the 50% discount applies if you have held for more than 12 months, and the remaining amount is added to your taxable income and taxed at your marginal rate.

Without the cost base inclusions and 50% discount, the same sale would generate a CGT bill of approximately $92,500 at the 37% bracket. The combination of a correctly calculated cost base and the 12-month discount saves approximately $54,575 in this example. That is the value of understanding the rules before you sell.

The 50% CGT discount - and the proposed 2026 changes

The 50% CGT discount has been in place since 1999. If you are an individual and you have held an investment property for more than 12 months before selling, only 50% of the net capital gain is included in your taxable income. At the top marginal rate of 47%, this brings your effective tax rate on the capital gain down to approximately 23.5%. Companies receive no CGT discount. Superannuation funds in accumulation phase receive a one-third discount.

Your cost base - include everything you are entitled to

Most investors underestimate their cost base because they only include the purchase price. The ATO allows a much wider range of qualifying costs, all of which reduce your capital gain and therefore your CGT bill. Every dollar added to your cost base is worth approximately 18 to 23 cents in saved CGT for an investor on the 37% to 47% marginal rate after the 50% discount.

The depreciation interaction

Division 43 capital works depreciation claimed during your ownership period reduces your property's cost base for CGT purposes. This means the more depreciation you have claimed, the higher your taxable capital gain will be when you sell. This is not a reason to avoid claiming depreciation - the annual tax saving from the deductions almost always exceeds the eventual CGT cost, particularly after the 50% discount. But it is something your accountant needs to model accurately before you sell to avoid surprises.

The 12-month rule

One of the most important and least-known rules about the CGT discount is that the relevant date for the 12-month test is the contract date - not the settlement date. If you sign a contract to sell your property in month 11 of ownership, you will not qualify for the 50% discount even if settlement occurs in month 13. Conversely, if you acquire a property via contract in month 1 and settle two months later, your 12-month clock starts from the contract date. Confirm the specific dates with your conveyancer and accountant well before you list for sale.

Capital losses - using them to offset gains

If you sell an investment property at a loss - a capital loss - that loss can be used to offset capital gains from other assets in the same financial year, or carried forward indefinitely to offset future capital gains. Capital losses cannot be used to offset ordinary income such as salary or rental income. If you have shares in your portfolio that have declined in value, there can be strategic merit in realising those losses in the same year as a property sale to reduce your net taxable capital gain. This is a legitimate strategy worth discussing with your accountant before you sell either asset.