Selling a property can feel like a financial win right up until you start calculating what remains after selling costs and tax. This capital gains tax property guide explains how CGT generally applies to NSW property owners, what may reduce your taxable gain, and the details worth checking before you sign a contract.
CGT is an Australian federal tax rule administered by the ATO, not a separate NSW property tax. It applies when you dispose of a capital asset, including real estate, and make a capital gain. For most sellers, the key questions are whether the property was your main residence, how long you owned it, whether it earned income, and what records you have kept.
How capital gains tax works when you sell property
A capital gain is broadly the difference between what you receive on sale and the property's cost base. The sale proceeds are usually the contract price, less certain costs of selling. Your cost base is more than the price you paid, which is why a careful calculation can make a material difference.
For CGT purposes, the relevant date is generally the date you enter into the sale contract, not settlement day. This matters if a contract is exchanged close to 30 June. Even when settlement occurs in the next financial year, the gain will usually be included in the tax return for the year in which contracts were exchanged.
Your net capital gain is added to your assessable income and taxed at your marginal tax rate. It is not usually taxed at a flat rate. A strong sale result may therefore place part of your income into a higher tax bracket, particularly if you have salary, business income or other investment gains in the same year.
Capital losses can generally be used to reduce capital gains, but they cannot be used to reduce wages or other ordinary income. If you have unused capital losses from an earlier year, they may also be relevant. The order of applying losses, discounts and other concessions can affect the result, so this is a worthwhile discussion with your accountant before lodging your return.
Capital gains tax property guide: calculating your cost base
The cost base commonly starts with the purchase price, then includes eligible acquisition, ownership and improvement costs. Keeping documents from the beginning of ownership is far easier than rebuilding a file just before a sale.
Costs that may form part of a property's cost base include:
- stamp duty paid on purchase
- conveyancing and legal fees for buying and selling
- buyers agent fees and selling agent commissions
- advertising, marketing and auction costs when selling
- valuation, survey and title search fees
- capital improvements, such as a new kitchen, extension, deck or major renovation
- some ownership costs, including interest, rates, insurance and repairs, where they have not been claimed as tax deductions and the applicable conditions are met.
Not every expense is included in every situation. For example, routine repairs may be treated differently from an improvement that adds enduring value. Depreciating assets and capital works deductions claimed for an investment property can also affect the calculation. If you have claimed deductions over several years, give your accountant the property records rather than relying on a rough estimate.
A simple example helps. If an investor bought a unit for $700,000, spent $25,000 on eligible purchase costs and later incurred $35,000 in eligible improvement and sale costs, their cost base may be around $760,000 before considering any other adjustments. If the property sells for $950,000, the starting capital gain is about $190,000. The final taxable amount may be lower after eligible losses and the CGT discount.
When your home may be exempt from CGT
The main residence exemption is one of the most valuable CGT rules for homeowners. In broad terms, a home may be fully exempt if it has been your main residence for the entire ownership period, has not been used to produce assessable income, and sits on land of two hectares or less.
Calling a property your home is not always enough. The ATO considers the facts, such as where you and your family live, where your belongings are kept, where mail is delivered, your address on electoral and government records, and the connection of utilities. There is no single test, but the property should genuinely be your home.
The exemption can be reduced where only part of the property was your main residence or where it was used to earn income. Common Sydney examples include renting out a room, operating a business from a dedicated area of the home, or moving out and leasing the entire property.
If you first lived in a property and later began renting it out, a market valuation at the time it was first used to produce income can be particularly important. Under the relevant rules, that value may become the starting point for CGT calculations rather than your original purchase price. Obtaining a credible valuation at the time of the change can prevent a difficult evidence problem years later.
The six-year absence rule
If you move out and rent your former home, you may be able to continue treating it as your main residence for CGT purposes for up to six years while it produces rental income. If it is not producing income, the absence rule may apply for longer. However, you generally cannot treat two properties as your main residence for the same period, except for limited overlap when changing homes.
This rule can be useful for rentvestors who keep their first home as an investment while living elsewhere. It is not automatic, and the best choice depends on the dates, the properties involved and their likely future gains. Keep a clear timeline of occupancy, rental periods and any main-residence choices made.
The 12-month CGT discount
Australian residents who own a property for at least 12 months may generally be eligible for the 50 per cent CGT discount. This is available to individuals and, in some circumstances, trusts. Companies do not receive the 50 per cent discount.
The discount applies after eligible capital losses have been considered. It is one reason timing can matter. Selling a property just before the 12-month ownership point may create a very different tax outcome from selling shortly afterwards. That said, delaying a sale solely for tax reasons may not make commercial sense if market conditions, finance costs or your next purchase are working against you.
Extra issues investors and overseas sellers should check
Investment property owners should look beyond the headline gain. Rental income, deductible expenses, depreciation schedules, renovations and periods of private use can all influence the final position. A property manager can help provide rental statements and expense records, while your accountant can determine how those figures affect CGT.
Foreign resident sellers face additional rules. The main residence exemption is generally unavailable to foreign residents, subject to limited life-event exceptions. There are also foreign resident capital gains withholding rules. From 1 January 2025, a buyer may need to withhold 15 per cent of the purchase price unless the seller provides an ATO clearance certificate or variation notice. This can apply regardless of the property's value, so Australian residents selling any property should arrange a clearance certificate early rather than leaving it until contracts are ready.
Inherited property, relationship breakdowns, deceased estates and subdivided land also require more tailored advice. In some cases, a transfer does not trigger CGT immediately. In others, a future sale can be affected by the deceased owner's acquisition date, the property's use, or whether development activity has moved beyond a private investment into a profit-making venture.
Prepare before your property goes to market
A well-managed sale starts with more than presentation and pricing. Before listing, assemble your purchase contract, settlement statement, stamp duty receipt, invoices for improvements, depreciation schedule, rental records, prior valuations and details of any periods you lived in or rented out the property.
It is also sensible to speak with a registered tax agent before exchange, especially if a sale will occur near the end of a financial year or you are deciding whether to sell one of several assets. They can estimate the likely tax position and help you plan for the cash required when your return is due. Your Next Move Real Estate can support the sale process with local market guidance and clear coordination, while tax advice should come from a qualified tax professional who can assess your full circumstances.
A good property decision considers the sale price, timing, holding costs and tax outcome together. With your records organised and the right advice obtained early, you can move forward with clearer expectations and fewer surprises after settlement.
