Selling a property you have owned for years should feel like a win. For many Australian investors and homeowners, it is also the moment they realise they have no clear picture of their CGT liability or whether they have the records to calculate it correctly.
CGT on long-held property is more complex than most people expect. The cost base is almost always higher than the purchase price alone. Records from years ago are often incomplete. And the ATO expects certified evidence for figures that cannot simply be taken from a contract of sale.
This guide walks through how CGT is calculated on Australian property, what the cost base actually includes, when a retrospective valuation is required, and how to get the numbers right before you sell.
How CGT on Property Actually Works
The Basic Calculation
Capital gains tax is not a separate tax in Australia. It is the tax payable on the capital gain from a property sale, which is added to your assessable income in the financial year the sale contract is signed and taxed at your marginal rate.
The calculation follows three steps:
- Subtract your total cost base from the sale proceeds to get the capital gain
- Apply the 50% discount if eligible (see below)
- Add the discounted gain to your other taxable income and apply your marginal tax rate
A straightforward example: a property purchased for $500,000 with $25,000 in buying costs, $30,000 in capital improvements, and sold for $950,000 with $20,000 in selling costs. The cost base is $575,000. The capital gain is $375,000. After the 50% discount, $187,500 is added to taxable income.
The 50% Discount and Who Qualifies
Australian resident individuals and trusts who hold a property for more than 12 months before selling are eligible for the 50% CGT discount. This halves the taxable gain before it is added to assessable income.
Companies do not receive the discount. Self-managed super funds receive a one-third discount rather than the full 50%. The discount applies to the net capital gain after deducting any capital losses from the same or prior years.
What Your Cost Base Actually Includes
Most Australian property owners underestimate their cost base because they only count the purchase price. The ATO recognises five elements, and including all of them can reduce the taxable gain significantly.
- Purchase price: The amount paid to acquire the property, including any deposit.
- Acquisition costs: Stamp duty, legal and conveyancing fees, building and pest inspection fees, and mortgage establishment costs paid at purchase.
- Capital improvements: Any spending that added value to the property or extended its useful life. This includes renovations, extensions, new flooring, kitchen and bathroom upgrades, landscaping, and structural work. Repairs and maintenance are not included: only capital improvements.
- Ownership costs (pre-2017 rule): For properties acquired before 7 December 2010, certain ownership costs such as council rates, insurance, and interest on borrowings that were not claimed as tax deductions could be included. This element was removed for properties acquired after that date.
- Disposal costs: Agent commission, legal fees, marketing costs, and other expenses incurred in selling the property.
Why This Matters in Dollar Terms
Consider a property purchased for $600,000 and sold for $980,000. Without any additions to the cost base, the capital gain is $380,000. After the 50% discount, $190,000 is added to taxable income. At a 37% marginal rate, the CGT payable is approximately $70,300.
Now add $22,000 in stamp duty and legal fees, $45,000 in capital improvements, and $18,000 in selling costs. The cost base rises to $685,000. The capital gain falls to $295,000. After the 50% discount, $147,500 is taxable. CGT payable drops to approximately $54,575, a saving of over $15,000 from correctly documenting the cost base.
Keeping records of every capital improvement, no matter how long ago it was made, has measurable value at sale time.
When the ATO Requires a Retrospective Valuation
There are situations where the purchase price alone cannot establish the correct cost base, and the ATO requires a certified valuation as at a specific date in the past. These are the most common:
Converting Your Home to a Rental
When you stop living in a property and begin renting it out, a CGT event occurs. The market value of the property at the date of conversion becomes the new cost base for all future CGT calculations. Without a valuation at that date, there is no defensible starting point.
This catches many homeowners off guard. If you moved out of your home five years ago, began renting it, and are now selling, the ATO will require evidence of what the property was worth at the moment it became an investment property. A capital gains tax valuation from a Certified Practicing Valuer establishes that figure using historical sales data, council records, and contemporaneous market evidence for the relevant date.
Inherited Property
When a property is inherited, the cost base depends on when the deceased acquired it. If the original owner purchased after 20 September 1985, the beneficiary’s cost base is generally the market value at the date of death. If purchased before that date, different rules apply depending on whether the property was the deceased’s main residence.
In either case, a retrospective valuation at the date of death is often required to establish the correct cost base for the beneficiary’s future CGT calculation.
Incomplete or Missing Records
The ATO requires property investors to substantiate their cost base with documentation. Where records have been lost, never kept, or relate to events that occurred many years ago, a retrospective valuation provides the certified, evidence-based figure that satisfies ATO scrutiny.
The ATO does not accept real estate agent appraisals or bank valuations for CGT purposes. Only a report prepared by a CPV registered with the Australian Property Institute meets the required standard. The ATO audited more than 10,000 CGT cases in 2025. Having the right documentation in place before a sale is the safest position to be in.
The Six-Year Absence Rule: A Missed Exemption for Many Sellers
How It Works
If a property was your main residence before you moved out and began renting it, you may be able to continue treating it as your primary residence for CGT purposes for up to six years. This is called the six-year absence rule, and for eligible sellers it can significantly reduce or eliminate CGT entirely.
The rule applies when you have moved out of the property, it is being rented, and you have not nominated another property as your main residence during that period. If you move back in before selling, the six-year clock resets from the date you return.
When It Does Not Apply
The six-year rule cannot be applied simultaneously with another main residence nomination. If you purchased a new home and treated it as your primary residence during the period your original property was rented, the six-year rule does not apply to the rental property for that period.
The absence rule is one of the most commonly missed CGT concessions available to Australian property owners. Speaking with a tax adviser before listing is the most reliable way to determine whether it applies to your situation.
What Does a CGT Valuation Cost and Is It Worth It?
The short answer is yes, almost always. The valuation fee itself is tax-deductible and can be added to the cost base, which directly reduces the taxable gain.
| Scenario | Typical Valuation Cost | Potential CGT Saving |
| Standard residential, recent date | $300 to $600 | Varies; cost base uplift often $50,000+ |
| Standard residential, pre-2000 date | $600 to $1,200 | Higher due to historical research value |
| Residential, pre-1990 or complex | $800 to $1,500 | Significant where values have risen sharply |
| Commercial property | $1,000 to $2,500 | Proportionally larger on higher-value assets |
A $1,000 valuation that adds $80,000 to the cost base reduces the capital gain by $80,000. After the 50% discount, $40,000 is removed from taxable income. At a 37% marginal rate, that is approximately $14,800 in CGT saved for a $1,000 investment. The valuation cost is rarely the variable worth cutting.
Older retrospective dates require more historical research, which is why pre-1990 valuations attract higher fees. Confirm the valuer has experience with historical sales data for the relevant period before engaging. Many investors also pay professional service fees like valuations and accounting using a rewards credit card to earn points on costs they are paying regardless.
What Is Changing With CGT From 2027?
The 2026 Budget Announcement
The 2026 Federal Budget announced that the current 50% CGT discount will be replaced with an inflation-indexation model from 1 July 2027. Under the new rules, the cost base will increase in line with inflation over the ownership period, and CGT will apply only to the real gain above inflation rather than the full nominal gain.
The change is intended to tax genuine capital growth rather than inflation-driven price increases. Properties with growth well above inflation may produce higher taxable gains under the new system compared to the flat 50% discount.
What It Means for Property Held Now
Gains arising before 1 July 2027 remain eligible for the existing 50% discount under current rules. The new system applies only to gains arising after that date. For investors who sell before 1 July 2027, the current framework still applies in full.
Investors in new residential builds will have the option to choose between the old and new system. As legislation has not yet passed Parliament, the final implementation details may still change. Speaking with a tax adviser before making any sale decisions based on the announced changes is recommended.
Get the Calculation Right Before You Sell
CGT on long-held property is almost never as simple as sale price minus purchase price. The cost base is usually higher than most owners expect. Records are often missing. And the ATO will challenge figures that cannot be substantiated with certified evidence.
The cost of getting it wrong is asymmetric. Overstating the cost base attracts ATO scrutiny and potential penalties. Understating it means paying more tax than you owe. Neither outcome is in your interest.
Reviewing your records, identifying any gaps, and obtaining a retrospective valuation where one is required are the three steps worth taking before any long-held property goes on the market.
This article is intended as a general guide only and does not constitute tax or financial advice. CGT rules are complex and depend on individual circumstances. Always seek advice from a registered tax professional before making property or investment decisions.
