Capital gains tax (CGT) applies when an investment property is sold for more than its cost base. In Australia, the gain is included in the investor’s assessable income and taxed at their marginal rate — but individuals and trusts who hold the property for more than 12 months qualify for a 50% CGT discount.
Calculating the gain. The cost base includes the purchase price, stamp duty, legal fees, and capital improvements made to the property. The capital gain is the difference between the sale proceeds and the cost base.
The 50% discount. For assets held more than 12 months, only 50% of the capital gain is assessable. For a $200,000 gross gain, the assessable amount is $100,000. This is added to the investor’s other income and taxed at their marginal rate.
For a 47% taxpayer. Tax on a $200,000 gross gain (after the discount, $100,000 assessable) is approximately $47,000 — an effective tax rate of 23.5% on the gain.
SMSF rates. Assets sold from an SMSF in accumulation phase attract a 15% CGT rate, reduced to 10% for assets held more than 12 months.
Company ownership. Companies do not qualify for the 50% CGT discount — gains are taxed at the corporate rate (25–30%) with no discount.
Timing. Investors approaching retirement may benefit from timing a property sale to a year when their other income is lower, reducing the marginal rate at which the gain is taxed.
