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Discover everything you need to know about Capital Gains Tax (CGT) on residential property in Australia. Learn about CGT exemptions, rates, 50% discounts, foreign investor rules, and tax-saving strategies for 2025.

📌 What is Capital Gains Tax (CGT) in Australia?

Capital Gains Tax is the tax you pay on the profit (capital gain) made from selling a property or investment. In Australia, CGT is part of your income tax and is not a separate tax. It's applied to assets purchased after 20 September 1985.

This tax significantly impacts property investors, homeowners selling an investment, and foreign investors. Understanding how CGT works is crucial for smart financial planning.

💡 Key Terms

• 1) Capital Gain: Profit from selling a property = Sale Price – Cost Base (purchase price + costs).

• 2) Cost Base: Includes purchase price, stamp duty, legal fees, agent fees, renovation costs.

• 3) Capital Loss: If you sell for less than you paid, this can offset other capital gains.

🔢 How is CGT Calculated?

Example:

• a) You bought a property for $500,000 in 2018.

• b) You sell it in 2025 for $700,000.

• 
  

  Then, Costs (stamp duty, legal, reno) = $50,000

• Capital Gain = $700,000 - ($500,000 + $50,000) = $150,000

If you held the property for over 12 months and you're an Australian resident, you’re eligible for the 50% CGT discount, meaning only $75,000 is added to your assessable income and taxed at your marginal rate.

🏡 When Does CGT Apply to Residential Property?

CGT applies when:

• 1) You sell an investment property or holiday home

• 2) You inherit property (in some cases)

• 3) You change a main residence to a rental property (partly applies)

• 4) You subdivide and sell part of your land

✅ When is CGT NOT Payable?

1) Main Residence Exemption

       a) If the property was your principal place of residence (PPOR) the entire time you owned it, you’re

       exempt from CGT.

2) Temporary Absence Rule

       a) If you move out and rent your home, you may still be exempt from CGT for up to 6 years under certain

       conditions.

3) Inherited Property

       a) Special rules apply. If the deceased lived there as a PPOR and passed away after 1985, CGT may not

       apply immediately.

4) Divorce/Separation Transfers

       a) CGT is typically deferred on property transferred between spouses under a family law court order.

🧾 CGT Rates & Discounts (2025)

🔍 CGT and Investment Properties

CGT plays a big role when selling an investment property:

•    a) Renovations can be added to the cost base

•    b) Loan interest, maintenance, and council rates are not included in CGT cost base (those are deductible

          expenses during ownership, not during sale)

Plan sales for when your income is lower to reduce your CGT burden.

🛡️ CGT Minimization Strategies:

1) Hold for More Than 12 Months

     a) Secure the 50% discount if you're an Australian tax resident.

2) Maximize Cost Base Deductions

     a) Include all eligible costs—stamp duty, legal fees, and major improvements.

3) Time Your Sale

     a) Sell in a financial year when your income is lower (e.g., after retirement or during career breaks).

4) Use Capital Losses

     a) Offset gains with previous capital losses to reduce taxable CGT.

5) Keep Accurate Records

    a) Maintain all receipts, documents, and contracts—essential during an ATO review or audit.

🧮 CGT on Property Subdivision, Granny Flats

& Airbnb