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The Complete CGT Guide for Australian Property Investors

Everything you need to understand Capital Gains Tax — from the basics to the 2026–27 Budget changes — explained in plain English.

Last updated: 17 May 2026

Important: This guide is for general information only. It does not constitute tax advice or financial advice. Tax outcomes depend on your individual circumstances. Always seek advice from a registered tax agent or financial adviser before making decisions.

In this guide

What is Capital Gains Tax?

Capital Gains Tax (CGT) is not a separate tax — it is the tax you pay on a "capital gain" as part of your income tax. A capital gain arises when you sell a CGT asset (such as an investment property) for more than its cost base.

In Australia, CGT applies to assets acquired on or after 20 September 1985. The gain is included in your assessable income for the year you sell the asset and taxed at your marginal income tax rate.

Key point: you only pay CGT when you sell (or "dispose of") the asset. You do not pay CGT on paper gains — only when you realise the gain by selling.

Example: You bought an investment property for $1,200,000 and sold it for $1,500,000. Your capital gain is $300,000 (less any acquisition costs). This $300,000 is added to your income for the year and taxed at your marginal rate.

How CGT is calculated

The basic CGT calculation has four steps:

Calculate the capital gain: Sale price minus cost base = gross capital gain
Apply any discount or indexation: Under current rules (before 1 July 2027), if you held the asset for more than 12 months, you can reduce the gain by 50%
Add the taxable gain to your income: The discounted gain is added to your other income for the year
Apply your marginal tax rate: The combined income is taxed at your marginal rate

Marginal tax rates 2026–27

Taxable income	Marginal rate
$0 – $18,200	0% (tax-free threshold)
$18,201 – $45,000	19%
$45,001 – $120,000	32.5%
$120,001 – $180,000	37%
$180,001+	47% (including 2% Medicare levy)

Capital gains are added on top of your other income, so they are taxed at your highest marginal rate. Most property investors with a salary are in the 37% or 47% bracket.

The 50% CGT discount

Since 21 September 1999, Australian individuals who hold a CGT asset for more than 12 months have been entitled to a 50% CGT discount. This means only 50% of the capital gain is included in your assessable income.

Example (current rules): Gross gain = $300,000. After 50% discount: taxable gain = $150,000. At 47% marginal rate: CGT payable = $70,500. Without the discount, you'd pay $141,000.

The 50% discount applies to individuals, trusts (with some conditions), and complying superannuation funds (which receive a 33.33% discount). Companies do not receive the CGT discount.

Important: From 1 July 2027, the 50% CGT discount will be abolished for assets held by individuals, trusts, and partnerships. It will be replaced by CPI indexation and a 30% minimum tax rate. See below.

What changed in the 2026–27 Budget

On 12 May 2026, the Federal Government announced the most significant changes to Australia's CGT regime since 1999. The key changes are:

50% CGT discount abolished from 1 July 2027

The 50% CGT discount for individuals, trusts, and partnerships will be replaced by cost base indexation and a 30% minimum tax rate. This applies to all CGT assets, not just property — including shares, managed funds, and other investments.

Negative gearing restricted from Budget night

Properties purchased after 7:30 PM AEST on 12 May 2026 can no longer offset rental losses against wages or salary income. Losses are 'quarantined' and can only offset other rental income or capital gains from residential property.

New builds get a choice

Investors in eligible new residential properties can choose, on disposal, between the existing 50% CGT discount or the new CPI indexation and minimum tax regime — whichever is more favourable.

Grandfathered properties protected

Properties purchased before 7:30 PM AEST on 12 May 2026 are 'grandfathered'. The existing 50% CGT discount continues to apply to gains accrued up to 1 July 2027. For gains accruing after that date, the new rules apply.

Source: budget.gov.au · Baker McKenzie Budget Analysis, 12 May 2026 · ATO guidance (pending)

What is grandfathering?

"Grandfathering" means the government is protecting your existing investment from the new rules. If you purchased your property before the Budget night cut-off, you are grandfathered.

The grandfathering cut-off

The cut-off is 7:30 PM AEST on 12 May 2026 (Budget night). This is the time the Treasurer delivered the Budget speech. The relevant date is the contract date, not the settlement date.

If you signed a contract to purchase a property before 7:30 PM AEST on 12 May 2026 — even if settlement has not yet occurred — you are grandfathered.

What grandfathering means in practice

For grandfathered properties:

The 50% CGT discount continues to apply to gains accrued up to 1 July 2027
For gains accruing after 1 July 2027, the new CPI indexation rules apply (using the property's value at 1 July 2027 as the new cost base)
Negative gearing losses remain fully deductible against wages and other income

Grandfathered property — practical effect: If you sell a grandfathered property before 1 July 2027, the old 50% discount rules apply in full. If you sell after 1 July 2027, the new rules apply to gains accrued after that date, but the 50% discount applies to gains accrued before it.

CPI indexation explained

Under the post-2027 rules, instead of the 50% discount, your cost base is adjusted for inflation using the Consumer Price Index (CPI) before calculating your taxable gain. This means you only pay tax on the "real" gain above inflation — not on gains that simply reflect the declining value of money.

How CPI indexation works

The formula is:

Indexed cost base = Cost base × (Current CPI ÷ Purchase CPI)

Taxable gain = Sale price − Indexed cost base

The CPI used is the ABS All Groups CPI, published quarterly. ClearGain automatically uses the latest published CPI data from the ABS.

Example: Purchase price $1,200,000 (Sep 2024, CPI 138.4). Current CPI 143.6. Indexed cost base = $1,200,000 × (143.6 ÷ 138.4) = $1,245,087. If you sell for $1,500,000, your taxable gain is $1,500,000 − $1,245,087 = $254,913. Under the old 50% discount, your taxable gain would have been $150,000. In this case, the 50% discount was more favourable.

At current CPI growth rates (approximately 3.1% per annum), the 50% discount is generally more favourable than CPI indexation for most investors. The breakeven CPI rate — the inflation rate at which the two methods produce the same result — is typically around 5–6% per annum for a property held for 2–5 years.

The 30% minimum tax rate

Under the post-2027 rules, a 30% minimum tax rate applies to net capital gains (after CPI indexation). This means that even if your marginal tax rate is lower than 30%, you will pay at least 30% tax on your capital gain.

In practice, for most property investors with a salary, the 30% floor is not the binding constraint — their marginal rate (37% or 47%) is higher. The floor primarily affects investors with low other income in the year of sale.

How the floor works: Tax payable = MAX(real gain × marginal rate, real gain × 30%). If your marginal rate is 47%, you pay 47%. If your marginal rate is 19% (e.g. you have low income), you still pay 30%.

Income support recipients, including Age Pension recipients, are exempt from the 30% minimum tax. Superannuation funds are not affected — the CGT discount for super funds is expected to remain unchanged.

Negative gearing and the new rules

Negative gearing occurs when the costs of owning a rental property (mortgage interest, rates, insurance, management fees, repairs) exceed the rental income it earns. The resulting loss is called a "net rental loss".

Current rules (grandfathered properties)

Under the current rules, net rental losses from investment properties can be deducted against any other income, including wages and salary. This reduces your taxable income and therefore your income tax.

New rules (post-Budget-night purchases)

For properties purchased after 7:30 PM AEST on 12 May 2026:

Net rental losses can only be deducted against rental income or capital gains from residential property
Losses cannot be deducted against wages, salary, or other income
Unused losses can be carried forward to future years and applied against future rental income or property gains

This means negative gearing is significantly less tax-effective for post-Budget-night properties. The tax benefit of holding a negatively geared investment property is deferred rather than immediate.

Exceptions

The negative gearing restrictions do not apply to:

Eligible new builds (new residential construction)
Widely held trusts and superannuation funds
Build-to-rent developments
Private investors supporting government housing programs
Commercial property and other non-residential asset classes

What is a cost base?

Your cost base is the total amount you paid to acquire and improve a CGT asset. A higher cost base means a smaller capital gain — and less CGT. Keeping accurate records of your cost base is one of the most important things a property investor can do.

What's included in your cost base

Under the Income Tax Assessment Act 1997 (Cth), your cost base includes:

Element 1 — Money paid: The purchase price you paid for the property
Element 2 — Incidental costs: Stamp duty, legal and conveyancing fees, buyer's agent fees, building inspection fees, title search fees
Element 3 — Non-capital costs: Costs of owning the property that were not deductible (e.g. interest on a loan used to purchase a private residence)
Element 4 — Capital improvements: Costs of improving the property (e.g. extensions, renovations, new fixtures) — not repairs or maintenance
Element 5 — Capital expenditure: Costs of preserving or defending your title to the property

Important distinction: Repairs and maintenance are deductible as expenses in the year they are incurred. Capital improvements (which add value or extend the life of the property) are added to your cost base. Getting this distinction right is important — it affects both your annual deductions and your eventual CGT.

Why good records matter

The ATO may request evidence of your cost base items when you lodge your tax return in the year you sell. Without receipts and records, you may not be able to claim the full cost base, resulting in a higher taxable gain. ClearGain's Cost Base Vault is designed to help you maintain these records.

The CGT cliff — 1 July 2027

The "CGT cliff" refers to 1 July 2027 — the date when the new CGT rules take effect. For investors with post-Budget-night properties, this date is critical because:

Sales before 1 July 2027 are subject to the current 50% CGT discount rules
Sales after 1 July 2027 are subject to CPI indexation and the 30% minimum tax
For most investors at current inflation rates, the 50% discount produces a lower tax bill

The "cliff" analogy captures the idea that there is a hard deadline — after which the rules change permanently. Unlike a gradual phase-in, the change is binary: before or after 1 July 2027.

How much does waiting cost? For a typical post-Budget-night investment property with a $300,000 gain at 47% marginal rate: selling before 2027 costs approximately $70,500 in CGT. Selling after 2027 costs approximately $100,000–$120,000 (depending on CPI). The difference — $30,000–$50,000 — is the "cliff cost".

What should investors do now?

Every investor's situation is different. The right action depends on your specific property, cost base, marginal rate, financial goals, and personal circumstances. With that said, here are the questions every property investor should be asking:

Is my property grandfathered? If you purchased before 7:30 PM AEST on 12 May 2026, the new rules don't apply to you until 1 July 2027 — and even then, only to gains accruing after that date.
What is my CGT exposure? Use ClearGain to calculate your estimated CGT under both the current and post-2027 rules. Know your number before making any decisions.
What is the breakeven CPI? At what inflation rate do the new rules become more favourable? If actual CPI stays below the breakeven, selling before 2027 is better.
What are my investment goals? CGT is one factor, but not the only one. Consider your long-term investment strategy, cash flow needs, and portfolio diversification.
Have I spoken to a tax adviser? ClearGain gives you the numbers. A registered tax agent or financial adviser can help you interpret them and develop a strategy.

Sources and references: This guide is based on the Income Tax Assessment Act 1997 (Cth), the 2026–27 Federal Budget announcements (budget.gov.au), Baker McKenzie Budget Analysis (12 May 2026), ABS CPI data, and ATO guidance. Tax law is subject to change and this guide reflects the position as at May 2026. Always verify with a registered tax agent.