Understanding CGT on Your Property Sale

Capital gains tax when selling property is complex—especially when you've lived in it, rented it, or used it as a holiday home. This guide breaks down the main residence exemption, the 6-year rule, and how different property types are taxed.

Pro Tip: Use our CGT Property Calculator to estimate your exact liability based on your specific property use and ownership timeline. Calculate your CGT now →

The Basics: What is Capital Gains Tax (CGT)?

Capital gains tax is the tax you pay on the profit when you sell an investment asset. For property:

Capital Gain = Sale Price - Sale Costs - Cost Base
Cost Base = Purchase Price + Stamp Duty + Legal Fees + Capital Improvements - Depreciation Claimed
You only pay CGT on the gain, not the full sale price

Key Rule #1: The 50% Discount (If Held >12 Months)

If you've owned the property for more than 12 months, you get a 50% discount on your capital gain. This is huge. It means if your capital gain is $100,000, you only pay tax on $50,000.

Tax Savings Example: A $100,000 gain at 37% tax rate = $37,000 tax. With 50% discount = $18,500 tax. That's $18,500 saved.

⚠️ Short Hold Sells: If you sell within 12 months, you pay tax on the full gain with no discount. Plan carefully before selling recently acquired properties.

Key Rule #2: The Main Residence Exemption

If a property was your main residence for the entire time you owned it, there is no capital gains tax at all. The entire gain is exempt.

Key requirements:

The property must have been your main residence (the place you primarily lived)
You must have lived in it during the entire ownership period (some exceptions apply)
You can only have one main residence at a time

Partial Exemption: If you lived in it for only part of the time, the exemption applies to that proportion. E.g., lived there 5 years out of 10 years = 50% exemption.

Key Rule #3: The 6-Year Absence Rule (The Game Changer)

This is the most powerful CGT rule for landlords. If you lived in the property as your main residence and then rented it out for up to 6 years, you can still claim the full main residence exemption—not just for the years you lived there, but for the entire 6-year rental period.

How the 6-Year Rule Works

You must have lived in it as your main residence first
You then rented it out (you cannot be living in it)
The rule applies to the 6 years immediately before the sale
You can claim the exemption for up to 6 months before you began renting it

Example: The 6-Year Rule in Action

Scenario: You bought a house in 2015 for $500,000. Lived in it as your main residence until 2019. Rented it out from 2019-2025. Sold in 2025 for $800,000.

Capital Gain: $800,000 - $500,000 = $300,000

Without 6-Year Rule: Only $300,000 × (4 years main residence / 10 years total) = $120,000 exempt. You pay CGT on $180,000.

With 6-Year Rule: Full $300,000 exempt. You pay $0 CGT.

Savings: ~$70,000 in tax (at 37% rate with 50% discount)

⚠️ Critical Requirements for the 6-Year Rule:

You must not have been living in the property during the 6-year rental period
The property must have been your main residence before you rented it (can't be a pure investment from day one)
Only applies to the 6 years immediately before sale—if you rented it longer than 6 years, the earlier years lose the exemption
If you own other properties, this property must genuinely be your main residence during the ownership period (the ATO may investigate)

Holiday Homes: No Exemption

Holiday homes are treated differently. If you use the property for personal holidays but it's not your main residence, you don't get the main residence exemption. The full capital gain is taxable.

Key points:

Holiday homes are subject to full CGT on the capital gain
You do get the 50% discount if held >12 months
If you rent it out part-time and use it personally, expenses are apportioned (e.g., 80% rental income, 20% personal use)
The full property is still subject to CGT (the personal use portion is not exempt)

Mixed-Use Example: If you rent a holiday home 9 months/year and use it personally 3 months/year, you claim 75% of expenses as deductions, but you still pay CGT on 100% of the capital gain.

Rental Properties: Full CGT, But With Discount

Pure investment properties (never your main residence) are subject to full CGT on the capital gain. However, you benefit from the 50% discount.

Calculation:

Capital Gain = Sale Price - Sale Costs - Cost Base
Taxable Gain (after discount) = Capital Gain × 50%
Tax = Taxable Gain × Your Marginal Tax Rate

Rental Property Example

Scenario: Investment property purchased for $400,000 in 2015. Rented continuously. Sold 2025 for $600,000.

Capital Gain: $600,000 - $400,000 = $200,000
50% Discount: $200,000 × 50% = $100,000 taxable
Tax (37% rate): $100,000 × 37% = $37,000 CGT

The Depreciation Trade-Off

Here's the catch: every dollar of depreciation you claim as a tax deduction reduces your cost base by the same amount, increasing your capital gain one-for-one.

Example: If you claimed $80,000 in depreciation deductions over 10 years of ownership:

You received $80,000 × 37% = $29,600 in tax deductions
Your capital gain increases by $80,000 (costing you ~$37,000 in CGT)

Net result: You received $29,600 in deductions but paid $37,000 extra in CGT. That's a loss of ~$7,400. This is why some landlords stop claiming depreciation as they approach a sale.

⚠️ Depreciation Clawback: Consider talking to an accountant before claiming large depreciation amounts if you plan to sell in the near future.

Common Property Sale Scenarios

Scenario A: Lived in It, Then Rented It (6-Year Rule Available)

Status: Used to be your main residence, now rented.
If within 6 years of moving out: Get main residence exemption for entire period (potentially $0 CGT)
If beyond 6 years: Main residence exemption only applies to the years you lived there.

Scenario B: Always a Rental Property

Status: Bought it to rent, never lived in it.
CGT: Full capital gain taxable (but with 50% discount)
Tax Strategy: Hold >12 months to maximize the discount.

Scenario C: Holiday Home

Status: Never your main residence, used for personal holidays.
CGT: Full capital gain taxable (with 50% discount)
Deductions: Only expenses related to rental income are deductible (apportioned by use).

Scenario D: Part Main Residence, Part Rental (Granny Flat or Room Rental)

Status: Main residence with granny flat or room rental.
CGT: Exemption applies to main residence portion only. Rental portion is taxable.
Apportionment: Split by area (square meters) or value, depending on the arrangement.

Mint's Fresh Take

The 6-year rule is often underutilized by landlords who don't know it exists. If you lived in your property and now rent it, you could have a massive CGT advantage. Get it wrong and you could overpay tax by tens of thousands of dollars. This is not an area to guess about—consult a qualified tax accountant before selling.

How to Use the CGT Calculator

Our CGT Property Calculator helps you estimate your liability across different scenarios:

Step 1: Enter whether the property was your main residence
Step 2: Specify if it was rented or used as a holiday home
Step 3: Enter purchase price, sale price, and associated costs
Step 4: Input ownership timeline and main residence dates
Step 5: The calculator shows your estimated CGT liability with explanations

Remember: The calculator is for educational purposes. Always verify results with a tax accountant before making decisions.

Key Takeaways

Main residence = potentially $0 CGT (massive advantage)
6-year rule = can extend exemption if you recently rented out a former home
50% discount = halves tax on properties held >12 months
Holiday homes = no exemption, full CGT applies
Depreciation = trade-off between deductions now and higher CGT later
Professional advice > DIY guessing (this is complex and high-stakes)

Next Step: Use the CGT Property Calculator to estimate your specific liability, then discuss the results with a tax accountant.