Guide · Updated 17 August 2026
Capital gains tax when you sell property
How the gain is actually calculated, which exemptions apply, and the two situations that turn a modest tax bill into a very large one.
How is capital gains tax calculated on a property sale?
Sale proceeds less the cost base — purchase price plus stamp duty, legal fees, agent commission and capital improvements, reduced by capital works deductions already claimed. Individuals who owned the asset for more than 12 months apply a 50% discount to the gain, and the discounted gain is taxed at marginal rates. Your main residence is generally exempt, and the six-year absence rule can preserve that exemption while it's rented. Two expensive traps: non-residents are generally denied the main residence exemption entirely, and the CGT event happens on the contract date, not settlement.
- 12-month hold: 50% discount for individuals
- Contract date fixes the income year
- Six-year rule can preserve the exemption
- Non-residents generally lose the main residence exemption
Building the cost base properly
Most overpaid CGT comes from an incomplete cost base. Include the purchase price, stamp duty, conveyancing and legal fees on both purchase and sale, agent commission, marketing costs, building and pest inspections, and every capital improvement — the deck, the renovation, the air conditioning, the driveway. For properties never used to produce income, some holding costs such as rates and interest can be included in the third element of the cost base.
Reduce the cost base by capital works deductions you've claimed while it was an investment. Keep every invoice from purchase to sale — this is why property records need keeping for decades, not five years.
Main residence and the six-year rule
Your home is generally CGT-exempt. If you move out and rent it, the six-year absence rule lets you continue treating it as your main residence for up to six years — so a sale within that window can remain fully exempt, provided you're not treating another property as your main residence at the same time. Move back in and the six years resets.
If the property was income-producing for longer, or you used part of it for business, the exemption is apportioned by time and area. Partial exemptions are common and worth calculating properly rather than estimating.
The two expensive traps
Non-residency. Since 2020, foreign residents are generally denied the main residence exemption when they sell — including Australians who have moved overseas and become non-residents. Selling while non-resident can cost hundreds of thousands that selling before departure, or after returning, would not. If you're leaving or returning, get advice before the contract, not after.
Contract date. The CGT event is the contract date, not settlement. A contract signed on 28 June with July settlement falls in the earlier income year. Where a gain would push you into a higher bracket, a few days can matter enormously — and once signed, it's fixed.
Also note foreign resident capital gains withholding: purchasers must withhold and remit a percentage of the price unless the vendor provides a clearance certificate. Apply for the certificate early; they are not instant.
Frequently asked questions
Do I pay CGT on my own home?
Generally no, where it's been your main residence for the whole ownership period and hasn't been used to produce income. Partial exemptions apply if you rented it, ran a business from part of it, or held it while treating another property as your main residence.
How does the six-year rule work exactly?
After moving out, you can elect to continue treating the property as your main residence for up to six years while it's rented, keeping the exemption. Only one property can be your main residence at a time, and returning to live in it restarts the six-year period.
Can I offset capital losses?
Yes — capital losses offset capital gains (apply losses before the 50% discount for the best outcome) and unused losses carry forward indefinitely. They can't offset ordinary income such as salary.
What about an inherited property?
Special rules apply, depending on when the deceased acquired it, whether it was their main residence, and whether it's sold within two years of death. Outcomes range from full exemption to a fully taxable gain, so get advice before listing.
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