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What is capital gains tax?
Capital gains tax (CGT) is a tax paid on profits from selling an investment asset, like property of shares, bought after 20 September 1985. You typically don’t need to pay CGT on profits made from selling your home.
CGT is not a separate tax. Instead, you report the profits (capital gains) made from selling a property or asset on your tax return. These profits are added to your regular income and can increase the amount of tax owed. Your capital gain may be enough to push you into a higher tax bracket.
What’s changing with capital gains tax in 2027?
The Australian Government proposed sweeping changes to CGT in the 2026 Federal Budget, and these could have a major impact on investors selling properties. These changes are still making their way through parliament and, if passed into law, are expected to take effect from July 2027.
The end of the 50% discount
The long-standing 50% CGT discount will be phased out from July 2027, replaced with a cost-base indexation system. This means the original purchase price of your property or other asset (the cost base) will be adjusted to match inflation (CPI), and you’ll pay tax on the profits you’ve made above inflation.
Given that houses in Australia tend to increase in value at a rate faster than inflation, this will likely mean a bigger tax burden for many.
New 30% tax rate
Under the new system, a 30% minimum tax rate will apply to your capital gains, no matter your tax bracket. Right now, capital gains on assets held for more than 12 months aren’t just halved; the remaining profit is also taxed at your marginal rate. If you have little to no other income in a financial year, you can realise a lower tax rate on those gains.
This change could affect retirees who sell investment properties or property investors who sell an asset while taking time out of the paid workforce. From July 2027, this strategy won’t be possible, as you’ll be charged a minimum of 30% CGT on capital gains, regardless of your tax bracket.
The new-build exemption
Investors who purchase a new build will be able to choose between the new indexation method or the existing 50% CGT discount. This aims to encourage investment in new builds to increase the supply of housing. Proposed changes to negative gearing rules also attempt to encourage investment in new builds.
Back-dated arrangements
Properties purchased before July 2027 will be subject to the 50% CGT discount. Any gains made after this date will be taxed by the new inflation-adjusted method.
How to avoid capital gains tax on property in Australia
You can generally avoid paying CGT when you sell the main residence you live in. CGT only applies if you sell an investment property or another investment asset.
But there are certain exemptions. For example, if you rented out part of your home while you owned it (even temporarily), flipped it, or ran a business out of it, you may need to pay CGT on part or all of the sale proceeds.
What is my main residence?
To decide if a property qualifies as a main residence, the ATO considers factors like whether the property is listed as your address on the electoral roll and your utility accounts, whether you have your mail delivered there, and if it’s where you keep your personal belongings.
According to the ATO, your home will be exempt from CGT if it:
- has been the home of you, your partner, or other dependants for the entire period of ownership,
- has not been used to produce income, and
- is on two hectares or less.
Several CGT exemptions recognise the day-to-day realities of owning a home. For example:
- If you build or renovate your home on land you own, the ATO says you can generally treat it as your main residence for four years before you move in.
- If you move houses, you can treat both your old and new properties as your primary residence for a period of six months while you finish selling your old house.
- If you move out of your home and rent it out to earn an income, you can continue treating it as your primary residence for up to six years, under the ‘six-year rule’. That is, unless you own another home and treat it as your primary residence within those six years.
If you don’t meet all these conditions, the ATO says you may still be entitled to a partial CGT exemption. You can work out what proportion of your property’s sale proceeds may be exempt using the ATO’s property exemption tool.
If you inherit a property and later sell it, you may also be exempt from CGT. The ATO outlines the different rules that apply in this situation. It could also be worth getting tax advice from a qualified expert.
How can I reduce capital gains tax when selling my property?
If you’ve owned the property for at least 12 months before selling it and are an Australian resident, the ATO says you’ll generally be eligible for a 50% discount on your capital gain. This is known as the capital gains tax (CGT) discount. Note that proposed changes to this rule will apply from July 2027.
Exemptions also apply. For example, if you used your home as a rental or business less than 12 months before selling or disposing of it, the ATO says you can’t use the discount.
There may be other ways to minimise CGT. For more information, visit the ATO website. Also consider whether you need to consult a qualified professional regarding your specific situation.
