Capital Gains Tax Guide for Property Investors (Post-2026 Budget)

What is Capital Gains Tax (CGT)?

Capital gains tax (CGT) applies when an investment property is sold for more than its cost base. The resulting gain is added to your taxable income and taxed at your marginal tax rates, so the amount you pay depends on your overall income position in the year of sale.

How CGT is Calculated (Including Depreciation Clawback)

At its simplest, your capital gain is the sale price minus the cost base. The cost base includes the original purchase price, associated purchase costs, and any capital improvements made during ownership.

Importantly, depreciation claimed while you owned the property reduces the cost base, which increases the capital gain on sale. This adjustment is often referred to as depreciation clawback — it effectively reverses some of the tax benefits you received during ownership.

For example, take a property sold for $950,000 with an original cost base of $725,000. If $50,000 of depreciation was claimed over the ownership period, the adjusted cost base falls to $675,000. That produces a capital gain of $275,000 — $50,000 higher than it would have been without the depreciation adjustment.

How CGT Works with Tax Brackets

The capital gain is added to your income and taxed progressively. This means the CGT you actually pay depends on your total taxable income in the year the property is sold. Selling in a lower-income year can therefore make a meaningful difference to the tax outcome.

2026 Budget Changes – Indexation Example

From 1 July 2027, the 50% CGT discount is set to be replaced by indexation. Under indexation, the cost base is adjusted for inflation so that only the real (inflation-adjusted) gain is taxed.

For example, if a property cost $700,000 and inflation lifts the indexed cost base to $800,000, and the property later sells for $950,000, the taxable gain becomes $150,000. This approach requires either an indexation calculation or a valuation approach to determine the adjusted cost base before the gain is worked out.

Key Differences (Old vs New)

Under the previous rules, a 50% discount applied to gains made by individuals on assets held for more than 12 months. Under the new rules, gains are indexed for inflation and subject to a minimum 30% tax. That said, certain exemptions and thresholds may allow low-income earners and pensioners to avoid or reduce exposure to the 30% minimum effective rate, depending on their taxable position.

Strategic Insights

These measures are designed in part to reduce the ability to engage in long-term tax planning into retirement and to shift investment behaviour toward more economically productive assets. Timing of the sale, your income levels, and the ownership structure you use all remain key planning considerations.

This guide is general information only. Please seek professional advice tailored to your circumstances before making decisions.