Capital gains tax 101
When CGT applies, how the 50% discount works, the main residence exemption, and the 6-year rule that lets you keep the exemption while renting.
When CGT applies
CGT applies when you sell (or otherwise dispose of) a property for more than its cost base. Your cost base = purchase price + acquisition costs (stamp duty, conveyancing, B&P) + capital improvements + selling costs. The gain is added to your taxable income in the year of sale and taxed at your marginal rate.
The 50% discount
If you've held the property for more than 12 months as an Australian resident, only 50% of the capital gain is included in your taxable income. The other 50% is tax-free. So a $200K gain after 12 months is treated as $100K of additional taxable income.
Main residence exemption
Your principal place of residence (PPOR) is exempt from CGT entirely — no tax on the gain when you sell. The property must have been your main home, you must have lived in it for the full ownership period, and you can only have one PPOR at a time (with limited overlap during a transition).
The 6-year rule
You can move out of your PPOR and rent it out for up to 6 years and still claim the full main residence exemption when you sell — provided you don't establish a new PPOR elsewhere. This is one of the most powerful tax planning tools in the Australian property landscape and is widely underused. (Talk to your accountant — Section 118-145 of the ITAA 1997.)
If you might move overseas or interstate temporarily, the 6-year rule can save tens of thousands in CGT — but you must structure it deliberately at the time of moving out.
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