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.

5 min read·Reviewed 9 July 2026·Ratesniffers Editorial Team

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.

The 2027 change to the CGT discount

Federal changes passed in 2026 are set to replace the flat 50% discount with a cost-base indexation approach, alongside a minimum tax, from 1 July 2027, with particular options flagged for owners of new dwellings. Under indexation, the taxable gain is calculated after adjusting your cost base for inflation rather than simply halving the gain, which changes the maths for long-held and lower-growth properties in particular.

The 50% discount described above still applies under the current rules, and how the 2027 rules will apply to a property you buy or sell around that date is exactly the kind of timing question to put to your accountant before you act.

General information only, not tax advice. The CGT discount rules change from 1 July 2027, so confirm the treatment for your own sale timing with your accountant.

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.

References

ATO: Capital gains tax, Primary CGT rules and discount
ATO: CGT discount, 50% discount eligibility
ATO: Property and capital gains tax, How CGT applies to property sales
Treasury: Tax expenditures and insights statement, Federal context on CGT discount cost

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