Guide to Capital Gains Tax on Investment Property in Australia

If you own an investment property or you are thinking about selling one, you’ve probably heard the term Capital Gains Tax. It is one of those phrases that can sound complicated, but at its core, it’s relatively straightforward.

At Keevers Group, we find many investors want a little clarification Capital Gains Tax works, when it applies and how much it might impact their final sale result. This guide breaks it down in simple terms so you can make informed decisions with confidence.

What Is Capital Gains Tax?

Capital Gains Tax (commonly referred to as CGT) is the tax you pay on the profit made when you sell an asset. In this case, your investment property.

It is important to understand that CGT is not a separate tax. It forms part of your income tax. The capital gain is added to your taxable income in the financial year you sell the property.

In simple terms: Sale price – minus your cost base* = capital gain. You are then taxed on that gain at your relevant income tax rate.

*Cost base is the total amount the property has cost you over time. It includes the original purchase price plus certain buying, selling and improvement expenses.

What Is Included in the Cost Base When Calculating Capital Gains Tax (CGT)?

Your cost base is not just the purchase price. It includes many of the costs associated with buying, holding and selling the property.

Your cost base can include:

• The purchase price
• Stamp duty
• Conveyancing and legal fees
• Buyer’s agent fees
• Building and pest inspections
• Selling agent commission
• Advertising costs when selling
• Capital improvements such as renovations, extensions or structural upgrades

Cost base does not usually include day to day repairs or maintenance, as those are typically claimed as deductions during ownership.

The 50% Capital Gains Tax Discount

One of the most important things investors should know is the 50% discount rule.

If you have owned your investment property for more than 12 months, you may be eligible for a 50% discount on the capital gain. This means only half of the gain is added to your taxable income.

This rule applies to individuals and most trusts. Companies are not eligible for the 50% discount. For many long term investors, this significantly reduces the tax impact of selling. This is part of CGT that is currently being reviewed at a federal government level in Australia as a method to improve available homes for renters across the country.

A Simple Example

Let’s look at a straightforward example.

• You purchased an investment property for $600,000.
• Your stamp duty and legal costs totalled $25,000.
• Over time, you completed $40,000 in capital improvements.

Your cost base is $600,000 + $25,000 + $40,000 = $665,000

You later sold the investment property for $900,000. Your capital gain is $900,000 – $665,000 = $235,000

If you owned the property for more than 12 months, you may qualify for the 50% discount. This would mean your capital gain is half of $235,000 = $117,500.

That $117,500 is then added to your taxable income for that financial year and taxed at your relevant income tax rate. This is why planning the timing of a sale can be important, particularly if you expect your income to change.

Why Capital Gains Tax Should Not Cause Panic When Selling

It is common for investors to delay selling because they are worried about the tax bill. While CGT is an important consideration, it should always be viewed in context.

If your property has increased significantly in value, paying tax on a profit still means you have made a profit.

For many Perth investors, particularly along the coastline and in tightly held suburbs, recent growth has prompted a reassessment of their portfolios. Sometimes selling and reinvesting elsewhere can create stronger long term outcomes, even after tax.