How to Calculate Capital Gains Tax on the Sale of Property
A plain-English guide for Adelaide property owners. Learn how capital gains tax works, when it applies and the exemptions that could reduce it.
If you are thinking about selling, one of the first financial questions to ask is whether you will pay capital gains tax. For many home owners the answer is reassuring, because the family home is generally exempt. For investors and those selling a second property, the picture is more involved. This guide explains how to calculate capital gains tax on the sale of property in clear terms. That way, you know what to expect before you sell.
Please note that tax rules change and every situation is different. The information below is a general overview only. Always confirm the current rules with the Australian Taxation Office (ATO). You should also speak to a registered tax agent or accountant about your own circumstances.
What Is Capital Gains Tax (CGT)?
Capital gains tax is the tax you pay on the profit, or “capital gain”, when you sell an asset such as property. It is not a separate tax with its own rate. Instead, the net capital gain is added to your assessable income for the year. It is then taxed at your marginal income tax rate.
In simple terms, if you sell a property for more than it cost you, the difference is a capital gain. If you sell for less, you make a capital loss. A capital loss cannot be deducted from your ordinary income, but it can offset other capital gains. The gain or loss is generally reported in the financial year you enter into the contract of sale, not the settlement date.
When Does CGT Apply to Property?
CGT applies to most property sales, but there are important exceptions. Whether you pay depends on the type of property, how it has been used and when it was acquired. As a general guide, CGT typically applies to:
Investment properties. A rental property or holiday home is generally subject to CGT on any gain when you sell.
Second properties. A property that is not your main residence will usually attract CGT.
Property used to produce income. Perhaps you rent out part of your home or run a business from it. If so, a portion of the gain may be assessable.
Inherited or gifted property may have CGT implications depending on the circumstances and when it was acquired.
One key date to be aware of is 20 September 1985, when CGT was introduced in Australia. Property acquired before that date is generally exempt from CGT. However, capital improvements made afterwards may still be assessable. Property acquired on or after that date is generally subject to the CGT rules.
The Basic Formula for Calculating CGT
At its simplest, working out a capital gain means subtracting what the property cost you from what you sold it for. The ATO refers to these two figures as the capital proceeds and the cost base.
Capital Proceeds
This is usually the sale price of the property, or the market value in some circumstances. It is simply what you receive when you dispose of the asset.
Cost Base
This is more than just the purchase price. It can include buying and selling costs such as stamp duty, legal fees and agent commission. It may also include certain capital improvements made to the property.
So the basic calculation looks like this: capital proceeds minus cost base equals your capital gain. From there, any eligible exemptions or discounts are applied to work out the final assessable amount. The cost base includes far more than the purchase price. As a result, keeping thorough records of every associated cost over the years can make a real difference to your final tax position when you calculate capital gains tax on the sale of property.
The Main Residence Exemption
For most people selling the home they live in, this is the section that matters most. The main residence exemption means your family home is generally fully exempt from CGT. Say the property was your home for the entire time you owned it and was not used to produce income. In that case, you typically pay no CGT on the sale at all.
To qualify for the full exemption, the dwelling generally needs to have been your main residence for the whole ownership period. It must not have been used to generate income. It must also sit on land of two hectares or less.
There is also a helpful provision often called the “six-year rule”. If you move out of your home and rent it out, you can continue to treat it as your main residence for CGT purposes for up to six years. This means you may still sell it CGT-free within that window. If the property is not producing income while you are away, it can be treated as your main residence indefinitely. Moving back in can reset the six-year period.
Perhaps your home was only your main residence for part of the ownership period, or you used part of it to earn income. In these cases, you may still qualify for a partial exemption. The ATO provides a property exemption tool to help work out what proportion of a gain is exempt.
The 50% CGT Discount Explained
For assessable gains not covered by the main residence exemption, the 50% CGT discount has long been one of the most valuable concessions available. Say you are an individual and have owned the property for at least 12 months before selling. In that case, you can currently reduce the assessable capital gain by 50%. In other words, only half of the gain is added to your taxable income.
For example, imagine a property held for more than a year produced an assessable gain of $100,000. The 50% discount would reduce the taxable portion to $50,000. That $50,000 is then added to your income for the year and taxed at your marginal rate. If two people own the property jointly, the gain is generally split according to their ownership share.
Important: changes are coming from 1 July 2027
Under legislation passed in 2026, the 50% CGT discount for individuals, trusts and partnerships is being replaced. A new system of cost base indexation with a minimum tax rate on capital gains will take its place. These changes apply only to gains that accrue from 1 July 2027 onwards.
Importantly, the current 50% discount still applies to sales before that date. Existing assets are also protected for the gain accrued up to 1 July 2027. The main residence exemption is not affected by these changes and continues as normal.
These rules are new and the timing can be complex. This is very much an area to discuss with a registered tax agent before making any decisions about when to sell.
Planning Your Sale With Bosco Realty
Understanding the tax side of selling is only one piece of the puzzle. Knowing what your property is worth in the current market matters just as much when planning your next move. We are not tax advisers. However, the team at Bosco Realty can help you understand your property’s value and time your sale to suit your goals.
A good starting point is a clear, current appraisal. You can begin with a free instant appraisal from Bosco Realty. From there, refine it with a detailed assessment from a local agent who knows your suburb. As a boutique, family-owned agency, we work across all Adelaide suburbs, the Adelaide Hills and regional areas. We combine local market knowledge with genuinely personalised service to help you sell with confidence.
Thinking About Selling Your Property?
Start with a free appraisal to find out what your property is worth. Then talk to our team about the best way forward.