Selling a rental property can make a capital gain or loss: the difference between the cost base, which is what it cost to obtain and improve the property, and the amount received for it. The sale counts from the day the contract is entered into, not settlement. From 1 July 2027 the 50% CGT discount for individuals, trusts and partnerships is replaced by cost base indexation and a 30% minimum tax rate, for gains that accrue after that date on assets held for at least 12 months; a buyer of a new build can choose either.
General informationHow the ATO and the Budget’s tax explainer describe capital gains tax on a rental, not advice about any sale. The ATO’s page on CGT when selling a rental property is the place to check, and a registered tax agent can advise on a particular return. Figures in the example are illustrative.
The date on the contract
For real estate, the CGT event normally happens when the contract is entered into, generally the date on the contract, rather than at settlement. The gain or loss goes in the return for the year the sale contract is signed. The same logic runs at the start: for capital gains tax, a property’s purchase date is the date of the contract, not settlement.
The purchase date also decides how much of the property the tax reaches. A property acquired after 20 September 1985 falls wholly within capital gains tax; for one acquired before that date, the tax reaches only certain capital improvements made after it.
The cost base, in words
The cost base starts with the price paid and adds certain incidental costs of acquiring, holding and disposing of the property, such as legal fees, stamp duty and real estate agents’ commissions. Costs of buying that can’t be deducted, conveyancing fees and stamp duty among them, go here instead. So do initial repairs, the work on damage that was already there at purchase.
Two things stay out. Amounts claimed, or that could be claimed, as a tax deduction are excluded, including decline in value and capital works deductions. Travel costs relating to a residential rental are excluded as well. Co-owners each make their gain or loss in line with their ownership interest. A property the owner once lived in may get a full or partial main residence exemption, and renting out part of a home brings a partial one; the ATO’s main residence pages set out how, and this guide doesn’t cover it.
The 50% discount, today
The ATO sets two conditions for the discount: the property was owned for at least 12 months before the CGT event, not counting the day it was acquired or the day of the event, and the owner is an Australian resident for tax purposes. A foreign or temporary resident can’t use the full discount on gains made after 8 May 2012, though part of it may apply for a period of Australian residency, and a company can’t use the discount at all. Capital losses from other assets are subtracted first; an owner entitled to the discount then reduces the remaining gain by 50%, or by 33.33% for a complying super fund. A home first used to earn rent less than 12 months before it is sold can’t use the discount.
Two older rules sit underneath. An asset owned since before 21 September 1999 can have its cost indexed for inflation instead, though the ATO says the discount gives a smaller gain in most cases. And a net capital loss is carried forward and deducted from capital gains in later years.
From 1 July 2027: one gain, two parts
The ATO says the reform is law and that its CGT side applies only to gains that accrue after 1 July 2027. The changes don’t apply to Tax Time 2026. The Budget’s tax explainer sets out the transition for eligible CGT assets other than new residential properties.
Bought and sold before 1 July 2027
No change: the current arrangements apply.
Bought after 1 July 2027
Treated wholly under the new arrangements.
For a property owned before 1 July 2027 and sold after it, the gain is cut at that date. The 50% discount applies to the difference between the cost base and the property’s value at 1 July 2027; indexation and the minimum tax apply to the gain from 1 July 2027, with that value as the new cost base. The owner works out the value in the return for the year of the sale, either from a valuation as at 1 July 2027 or from a set formula that estimates it from the property’s growth over the holding period, which the ATO is to provide tools for.
Illustrative example, not a real caseA rental bought in 2020 has a cost base of $600,000. Its value at 1 July 2027 is put at $750,000, and it is sold in 2031 for $820,000, with no other costs and no capital losses from other assets.
- Part one, to 1 July 2027: $750,000 − $600,000 = $150,000. For an owner entitled to the 50% discount, $75,000 of it counts.
- Part two, from 1 July 2027: $820,000 − $750,000 = $70,000, taxed under indexation and the minimum tax. Indexation will use the Consumer Price Index, so this part can’t be worked out until those figures exist.
The rest of the new rules
- The 30% minimum tax applies to real capital gains accruing from 1 July 2027, and doesn’t affect people whose capital gains are already taxed at 30% or more.
- People receiving a means-tested income support payment, such as the Age Pension or JobSeeker, in the financial year they realise the gain are exempt from the minimum tax.
- The changes cover CGT assets, property and shares included, held by individuals, partnerships and trusts for at least 12 months.
- A buyer of a new build can choose either the 50% discount or indexation and the minimum tax on selling it.
- The main residence stays exempt, gains accrued before 1 July 2027 on pre-1985 assets stay exempt, and the 60% discount for qualifying affordable housing is kept.
Two rules that bite at the sale itself
Withholding. As at October 2026, the ATO says foreign resident capital gains withholding of 15% of the sale price must be withheld on all Australian property sales unless the seller is an Australian resident for tax purposes with a clearance certificate, or a foreign resident with a variation notice setting a lower rate. It covers residential property, including a home, as well as vacant land, buildings and commercial property.
GST. The sale of existing residential premises is generally input taxed, so the price doesn’t include GST and no GST credits can be claimed on the costs of buying or selling.
The records a sale leans on
The ATO asks owners to keep records for the whole time they own the property and for at least 5 years after the sale. Penalties can apply if records aren’t kept for at least 5 years after the CGT event. The records show the dates the property was acquired and disposed of, the parties, and whether a deduction was claimed for each item of spending.