Selling Investment Property Tax: What You’ll Pay

A strong sale price is only half the result. When you sell an investment property, the number that matters is what remains after the loan payout, selling costs and tax are dealt with. Selling investment property tax is not a flat percentage, and leaving it until settlement is close can put you under unnecessary pressure.

For most Australian investors, capital gains tax (CGT) is the main issue. But the final position can also turn on your ownership structure, the property’s history, depreciation claims, carried-forward losses and whether GST applies. No guesswork. Get the numbers clear before you commit to a sale strategy.

How selling investment property tax generally works

There is no separate CGT tax rate. A capital gain is generally added to your taxable income and taxed at your applicable marginal rate. This means the same property sale can produce a very different tax outcome for two owners, even where the sale price is identical.

In simple terms, the starting calculation is the property’s sale proceeds less its cost base. The cost base is more than the original purchase price. It can include certain costs of buying, holding and selling the property, subject to the rules and whether you have already claimed those amounts as deductions.

Your accountant will then consider capital losses, CGT concessions and any applicable discount. The result is the taxable capital gain, not necessarily the cash profit you feel you have made.

The contract date usually matters more than the settlement date for CGT purposes. If you exchange an unconditional contract in June and settle in July, the gain will commonly fall into the earlier financial year. That can affect your tax planning, especially if your income is likely to change between years. Contract conditions can complicate this point, so confirm the position before signing.

Build the cost base properly

Poor records cost investors money. A property may have been held for years, changed property managers, undergone improvements or had several owners. By sale time, invoices are often missing and assumptions start replacing evidence. That is not a position you want to be in.

The cost base may include the purchase price, stamp duty, conveyancing costs, title and search fees, buyer’s agent fees where applicable, and certain expenses incurred to sell. Agent commission, marketing, photography, auction costs and legal fees on sale are commonly relevant selling costs.

Capital improvements can also be relevant. Replacing an ageing kitchen, adding a room, installing permanent landscaping or undertaking structural work may form part of the cost base. Routine repairs are different. Fixing a leaking tap or repainting between tenants is generally not a capital improvement simply because it helped present the property for sale.

Holding costs require more care. In some circumstances, costs such as council rates, land tax, interest and insurance can be included, but generally not where they have already been claimed as rental deductions. This is exactly where clean records and tailored tax advice matter.

Keep contracts, settlement statements, invoices, depreciation schedules and evidence of improvements. Bank statements can help support a claim, but they are not always enough to establish what work was completed and whether it was capital in nature.

Depreciation can change the calculation

Depreciation has improved the cash flow of many investment properties over the years. It can also affect the gain when you sell.

Capital works deductions claimed for structural items generally reduce the property’s cost base. In plain English, claiming eligible building write-offs during ownership can increase the capital gain later. That does not make depreciation a bad decision. It means the full picture should be understood before you set a price expectation based only on the purchase and sale figures.

Depreciating assets such as appliances, carpets and certain plant may have separate balancing adjustment consequences. A quantity surveyor’s report and your accountant’s records should be reviewed well before settlement, not chased after contracts are exchanged.

The 50% CGT discount: valuable, but not automatic

Individuals and trusts may generally access the 50% CGT discount where the asset has been held for at least 12 months. Superannuation funds may be eligible for a different discount. Companies generally do not receive the 50% discount.

The order of the calculation matters. Capital losses are usually applied before the CGT discount. So, if you have realised losses from another investment, they may reduce your gross gain before any eligible discount is applied.

The discount can be significant, but it should not be used as a reason to delay a sale that no longer makes commercial sense. Holding a weak asset for extra months can mean more interest, maintenance, vacancy risk and lost opportunity elsewhere. Tax should shape the plan. It should not run the entire decision.

When a former home is now an investment

A property that was once your main residence may not be fully taxable, but the answer depends on its timeline. How long you lived there, when it became available for rent, whether another home was treated as your main residence, and whether you used the absence rule can all matter.

The commonly discussed six-year rule may allow a former home to continue being treated as your main residence while it is rented out, provided the requirements are met. It is not an automatic exemption, and you cannot generally claim two full main-residence exemptions at the same time.

If only part of the ownership period qualifies, a partial exemption may apply. A market valuation at the time the property first became income-producing can be critical in some situations. If you moved out years ago and are now considering a sale, obtain advice before you list. The dates and documents matter.

Don’t ignore GST and ownership structure

Most established residential investment property sales are not subject to GST. That changes where you are selling new residential premises, substantially renovated property, land in the course of an enterprise, or commercial property.

Commercial sales need particular care. GST may apply to the sale, while a properly structured sale of a going concern may be treated differently. A leased commercial property is not automatically a going concern just because a tenant is in place. The contract terms, lease position and parties’ GST registration need to be handled correctly from the outset.

Your ownership structure matters too. An individual, joint owners, a company, a discretionary trust and a self-managed super fund do not face identical tax treatment. Do not rely on a friend’s outcome, an online calculator or the property’s estimated equity. Your entity and your wider income position drive the result.

Plan the sale before the campaign starts

A disciplined sale campaign gives you more control than a rushed listing. That includes tax planning.

Speak with your accountant before you sign an agency agreement or accept an offer, particularly where the potential gain is substantial. Ask for an estimate under different contract dates and sale prices. Confirm what records are needed, whether you have capital losses available, how depreciation affects the position, and whether GST needs to be addressed in the contract.

Then separate the tax decision from the selling decision, while letting each inform the other. Your agent’s role is to drive competition, position the property correctly and negotiate the strongest achievable terms. Your accountant’s role is to advise on tax. Both conversations should happen early enough for you to act on them.

For Mandurah investors, that may mean considering whether a current tenant, lease expiry, buyer demand and the financial-year timing are pulling in the same direction. Sometimes they are. Sometimes the market opportunity is clearly stronger than the tax benefit of waiting.

A sale should never be treated as a simple swap of keys for funds. Get your records together, obtain tax advice specific to your structure, and set a sales plan built around your net outcome. A higher price matters. Keeping control of the result matters more.