Selling a property isn’t just about signing contracts and collecting the profit. If you’ve made a gain on the sale, the taxman will likely want a slice—and that’s where Capital Gains Tax (CGT) comes into play.
Whether you’re selling an investment property or a home you once lived in, CGT can have a major impact on your financial outcome. Getting ahead of it with the help of an accountant can mean the difference between a smooth transaction and an unexpected bill.
Here’s what property owners need to understand before putting up the “For Sale” sign.
What Is Capital Gains Tax?
Capital Gains Tax is the tax you pay on the profit made from the sale of an asset, such as property, shares, or a business. In the case of real estate, it applies when the sale price is higher than what you originally paid for the property, including purchase costs.
CGT isn’t a separate tax—it’s part of your income tax. The net capital gain is added to your assessable income for the financial year in which the property was sold.
If you owned the property for more than 12 months, you might be eligible for a 50% CGT discount. That means only half the gain is taxed, which can be a significant saving—provided you qualify.
Does CGT Apply to All Properties?
Not always. If the property has been your primary place of residence for the entire time you’ve owned it, the sale is typically exempt from CGT under the main residence exemption.
However, things get more complicated if:
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- You rented the property out at any point
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- You used the home to run a business
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- You own multiple properties
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- The property is owned through a trust or company
In these cases, CGT may apply partially or in full. It’s here that professional advice becomes invaluable.
Calculating Your Capital Gain
Your capital gain is calculated by taking the sale price of the property and subtracting the cost base . The cost base includes:
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- Purchase price
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- Stamp duty
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- Legal fees
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- Agent fees
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- Renovation costs (capital improvements only)
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- Loan establishment fees
From there, you can also subtract eligible selling costs such as advertising and conveyancing.
Any gain remaining after this calculation is potentially taxable. If you qualify for the 50% discount, that’s applied before the gain is added to your income.
But understanding which costs can be included, and how depreciation or rental income affect the equation, requires more than a simple spreadsheet. This is where accountants Melbourne property owners rely on can bring real clarity, especially when large sums are involved
Common Mistakes That Cost Sellers
One of the most common errors is forgetting about previous depreciation claims on investment properties. If you claimed depreciation on the building or fixtures during ownership, those deductions reduce the cost base, which increases the capital gain when selling.
Another is assuming the full main residence exemption applies, even when the property was rented out for a period. A partial exemption might apply, but it depends on several factors like timing and how long you lived in the home.
Some sellers also mistakenly assume CGT doesn’t apply if they immediately reinvest the funds into another property. Unlike superannuation rollover concessions, this isn’t the case with CGT—each transaction is treated independently.
Timing Can Make a Big Difference
The timing of your sale can impact how much CGT you pay. For example:
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- Selling in a low-income year can reduce your overall tax rate
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- Holding for more than 12 months makes you eligible for the CGT discount
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- Selling after July 1 rather than just before June 30 may help if your income is expected to drop the following year
Strategic timing is one of the most underused tools in managing CGT. But it’s something your accountant can model for you, taking into account your current income, projected earnings, and other tax obligations.
Getting the Right Advice Early
Capital gains tax shouldn’t be something you deal with after the sale is done. Ideally, your accountant should be involved well before the sale process begins. They can:
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- Estimate your potential CGT liability
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- Help you gather and calculate your cost base
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- Identify opportunities to minimise your gain
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- Recommend when and how to sell for the good outcome
Many accountants melbourne investors work with offer pre-sale consultations specifically for this purpose. It’s often a small investment that results in significant savings.
Final Thoughts
Selling property can be financially rewarding, but it also comes with tax complexity—especially if the property wasn’t your full-time home. Understanding Capital Gains Tax, how it’s calculated, and how to reduce it legally is crucial for protecting your profits.
Whether you’re selling your first investment or exiting a long-held property, make sure you’re not leaving money on the table. A well-informed accountant can help you navigate the rules, avoid common pitfalls, and plan your exit with confidence.
