Under the Government’s 2026–27 Budget reforms, from 1 July 2027 cost base indexation and a minimum tax rate of 30% on capital gains take the place of the 50% CGT discount for individuals, trusts and partnerships. The ATO says these measures are now law, and that the CGT reforms will apply only to gains that accrue after 1 July 2027. They don’t apply to Tax Time 2026.
Folio 2 · The closing account
Capital gains when you sell
Selling a rental property may make a capital gain or loss: the ATO measures the gap between what you receive for the property and what it cost you to acquire and improve it, called the cost base. The sale normally counts from the date of the contract, not settlement, and an Australian resident who has owned the property for at least 12 months can generally reduce the gain by 50%, a discount legislated to be replaced for gains that accrue after 1 July 2027.
General information, not tax advice. Capital gains tax is federal, so the rules are the ATO’s wherever the property is; its pages are listed at the foot of this page, and it publishes a calculator and steps for working out the tax. A home you once lived in has its own exemption rules, which the ATO sets out on its main residence pages and this folio doesn’t cover.
- Folio
- 2 of 6
- Rules
- Australian Taxation Office (federal)
- Pages
- CGT when selling your rental property; CGT discount; tax reform 2026–27
- Checked against the sources on 8 October 2026
The date of the sale
For a property sold under a contract, the ATO says the capital gains tax event normally happens when the contract is entered into, which is generally the date shown on it, rather than at settlement. A condition in the contract, such as finance approval, generally doesn’t change that date. If there is no contract, the event happens when ownership changes.
That date decides the tax year. In the ATO’s own example, a contract signed in June 2026 and settled in November 2026 is reported in the 2025–26 income year. It is also the date the 12-month test for the discount, below, is measured to.
Adding up the cost base
The cost base is the amount you paid for the property together with certain incidental costs of acquiring, holding and disposing of it, such as legal fees, stamp duty and real estate agent’s commissions. The ATO’s worked example for a rental sets it out as a sum, which reads like this in ledger form, without the example’s amounts:
| Sign | Line | What goes in it |
|---|---|---|
| + | A | The purchase price |
| + | B | The costs of the purchase, including stamp duty and legal fees |
| + | C | The cost of improvements to the property |
| + | D | The costs of sale, including legal fees |
| − | E | The capital works deductions claimed while you owned it |
| − | F | The decline in value deductions claimed while you owned it |
| = | Total | The cost base, which is taken from the sale price to give the capital gain |
Lines E and F matter for anyone who has claimed building or asset deductions: the ATO says the cost base doesn’t include amounts you have claimed, or could claim, as a tax deduction. Amounts you were unable to deduct while you held the property may form part of it, but travel expenses for a residential rental are excluded from the cost base as well.
The ATO lists these capital expenses, which may be included in the cost base:
- Conveyancing costs charged by a conveyancer or solicitor
- Fees for title searches made during the conveyancing
- Valuation fees, when it is a private valuation by your solicitor
- Stamp duty paid on transferring the property
- Initial repairs. In the ATO’s example, repainting dirty walls, replacing broken light fittings and repairing doors on a newly bought rental before the tenants moved in were capital expenses, added to the cost base.
Twelve months, and the 50% discount
The ATO says you can reduce a capital gain by 50% if both of these apply:
- You owned the asset for at least 12 months before the event, not counting the day you acquired it or the day of the event.
- You are an Australian resident for tax purposes.
Foreign and temporary residents can’t use the full discount for gains made after 8 May 2012, though an apportioned discount may apply for a period of Australian residency. A home first used for rental less than 12 months before it is sold gets no discount. Any capital losses are taken off the gains first, and the discount is applied to what remains.
The owner matters too. Australian trusts can discount a gain by 50% and complying super funds by 33.33%; companies can’t use the discount. Australian-resident individuals who provide affordable rental housing to people on low to moderate incomes may get up to 10% more, taking the discount to up to 60%.
For gains after 1 July 2027
When the sale makes a loss
If your capital losses for a year are larger than your capital gains, you have a net capital loss. The ATO says it can be carried forward, with no time limit, and deducted from capital gains in later years, but it can’t be deducted from your other income. That is the difference from a rental loss, which can offset salary and wages: folio 6.
Two owners, one property
Co-owners each make a capital gain or loss in line with their ownership interest. In the ATO’s examples, joint tenants each report half the gain, and tenants in common report it in their own shares, such as 10% and 90%.
Older properties, and the furniture
If the property was acquired before 20 September 1985, capital gains tax applies only to certain capital improvements made after that date. If the sale includes depreciating assets, the ATO says a balancing adjustment event happens to them, and that the sale proceeds should be apportioned between the property and those assets.