Capital Gains Tax (CGT) in Australia can significantly reduce your profits when selling property—but with careful planning, you can minimize or even eliminate your CGT liability. This article explains ATO-approved strategies, with examples and a clear structure to boost SEO and readability.
1. What Is Capital Gains Tax (CGT)?
CGT applies when you profit from selling a property (i.e. selling price minus cost base). It’s part of your income tax—not a separate tax—so gains are taxed at your marginal tax rate (assetbase.com.au, Nanak Accountants).
- Cost base includes purchase price, stamp duty, legal fees, capital improvements, and minor holding/disposal costs (ausfirstlending.com.au).
- CGT is triggered when you sign the contract of sale, not the settlement date.
2. Main Strategies to Reduce or Avoid CGT
✅ Strategy 1: Main Residence Exemption
If the property has been your principal place of residence (PPOR), any capital gain upon sale is generally completely exempt from CGT (Australian Taxation Office).
✅ Strategy 2: The 6‑Year Rule (Temporary Absence)
You can move out and rent your former PPOR for up to 6 years without losing the exemption—provided you don’t claim another main residence during that time.
✅ Strategy 3: Hold Over 12 Months – 50% CGT Discount
For investment properties held more than 12 months, individuals and trusts get a 50% discount on the capital gain before it’s added to taxable income.
✅ Strategy 4: Maximise Your Cost Base
Ensure eligible capital improvements (like renovations) and acquisition/disposal costs are documented and included to reduce taxable capital gains (ausfirstlending.com.au).
✅ Strategy 5: Use Capital Losses
If you have prior capital losses (e.g. on shares or other assets), you can offset them against current gains to reduce your taxable amount. Losses can be carried forward indefinitely (Australian Taxation Office, OdinTax).
3. Summary Table: CGT Strategies at a Glance
| Strategy | Who it’s for | Key Benefit | Notes |
|---|---|---|---|
| Main Residence Exemption | Homeowners | No CGT on sale | Must have lived in property as PPOR |
| 6‑Year Temporary Absence | Former PPOR now rented | Exemption preserved up to 6 years | Do not nominate another main residence |
| 50% CGT Discount | Investment property owners | Cuts computed gain in half | Must own for > 12 months |
| Cost Base Maximisation | Investors | Larger deductions reduce taxable gain | Capital improvements only, with proper records |
| Capital Losses | Investors | Offset gains with past losses | Losses carried forward to future years |
4. Common Scenarios and How CGT Rules Apply
Scenario A: Moving out & renting former home
You lived in your home for 5 years, then rent it for 3 years, and sell within the 6‑year window. You can still claim full exemption under the 6‑year rule.
Scenario B: Turning home into rental
Once you start renting, you need a market valuation at that point to establish cost base from the rental start date—ensuring CGT is only applied on growth during rental period.
Scenario C: Inherited property
If the deceased acquired the property pre‑20 Sep 1985, and it became a PPOR, different rules may apply (including market‑value cost base and possible two‑year disposal rule)—seek tailored advice.
5. Additional Tax Tools & Structures
- Small business CGT concessions may apply if the property is used in a qualifying business (ausfirstlending.com.au).
- Trusts or Pty Ltd structures offer flexibility and tax‑planning advantages, especially when distributing income to lower‑rate beneficiaries (News.com.au).
- SMSFs (self‑managed super funds) investing in property may benefit from concessional tax treatment—though legal and administrative complexity applies (News.com.au).
✅ Official ATO Guidance
For authoritative detail, refer to the Australian Taxation Office:
👉 ATO’s guide: Real estate and main residence which explains how the main residence exemption works (Australian Taxation Office, Australian Taxation Office).
You can also explore the comprehensive ATO guide to CGT 2024 for further rules and scenarios (Australian Taxation Office).
✅ Best Practice Tax Planning Tips
- Plan early—consider CGT impacts at the point of purchase or when property use changes.
- Keep thorough records, including valuations, invoices, and correspondence.
- Time your sale strategically—ideally during a year with lower income.
- Engage a qualified tax advisor or registered tax agent—they can help apply exemptions, cost base components, equity relief, and small‑business concessions correctly.
✅ Final Takeaways
- Main residence exemption is the most powerful way to avoid CGT.
- The 6‑year rule lets you rent your former home and still qualify for exemption.
- The 50% discount rewards long-term ownership beyond 12 months.
- Careful record‑keeping and cost‑base adjustments can significantly reduce taxable gains.
- Tax structuring via trusts or SMSFs may offer further optimisation—but always professional advice is essential.
Understanding your property’s CGT exposure and options under current ATO rules (as of 2025) allows you to legally avoid or reduce CGT significantly. Planning smartly well before selling is key to keeping more of your profit.
For full details on exemptions and CGT events, start with the ATO’s official pages linked above—they are the most trusted, up‑to‑date source.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. Consult a registered tax agent or legal advisor before making any decisions.