How to Avoid Capital Gains Tax When Selling an Investment Property (Legally!)
🧠TL;CBBR (Too Long, Can’t Be Bothered Reading)
Want to dodge CGT like a pro? Here’s your cheat sheet:
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Live in it? Claim the main residence exemption.
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Rent it out? Use the six-year rule.
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Owned it long enough? Get the 12-month discount.
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Suffered investment losses? Offset your gains.
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Renovated? Add those costs to your base.
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Earning less this year? Sell now.
And for the love of property profits—see a tax advisor before making the big move.
Selling an investment property in Australia can be a smart financial move—but there’s one little (big) thing that might crash your celebration: Capital Gains Tax (CGT).
Thankfully, there are legitimate ways to reduce or avoid it altogether—and no, they don’t involve hiding from the ATO in a bush shack. Let’s break it down with expert strategies, practical examples, and a few well-timed jokes to keep things lively.
🧾 What is Capital Gains Tax, Anyway?
Capital Gains Tax (CGT) is the tax you pay on the profit from selling assets like shares or property. For real estate, CGT kicks in when you sell an investment property for more than you bought it (after deducting relevant costs).
Here’s the kicker: CGT isn’t a standalone tax. It’s added to your income and taxed at your marginal rate, which means that the more you earn, the more you’ll pay in CGT. So yes, the government does want a piece of your capital gains cake.
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đź’ˇ Strategies to Avoid or Reduce CGT
1. Use the Main Residence Exemption
If you’ve lived in the property as your main residence at any point, you might be eligible for the full CGT exemption.
Eligibility checklist:
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- Lived in the home genuinely (not just crash-squatting for tax reasons).
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- Utilities and bills in your name.
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- It was your postal address and registered address for voting, Medicare, etc.
Even if it was your home before you rented it out, you could claim an exemption on part of the gains. Not bad, hey?
2. Take Advantage of the Six-Year Rule
Here’s where it gets interesting.
If you move out and rent your former home, you can still treat it as your main residence for up to six years—as long as you don’t claim another property as your main residence in the meantime.
You can even move back in, then move out again, and the six-year period resets. It’s like hitting refresh on your exemption clock.
3. Hold the Property for Over 12 Months
This one’s simple: if you own the investment property for more than 12 months, you’re eligible for a 50% CGT discount when you sell.
Hold it for 365 days and one minute = win.
Sell it after 11 months = ouch.
This is one of the most common and effective CGT reduction strategies for investors.
I can help you a lot more in person AND I can take over a lot of the work to prepare your home or help you project manage.
4. Offset Gains with Capital Losses
Got stung by a dodgy crypto token in 2022? Or sold shares at a loss? Those capital losses can be carried forward and used to offset capital gains from your property sale.
This reduces your taxable gain—and helps take the sting out of past investment mistakes.
5. Increase Your Cost Base
The “cost base” is what you spent on the property, and it’s not just the purchase price.
You can include:
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- Stamp duty
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- Legal fees
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- Marketing costs
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- Renovation and improvement expenses (capital in nature)
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- Borrowing costs (in some cases)
More costs = higher cost base = lower capital gain = less tax. đź’¸
6. Time the Sale Strategically
CGT is based on your income in the year of sale. So if you’re planning a career break, sabbatical, or early retirement, that might be the ideal time to sell.
Lower income = lower tax bracket = less CGT.
If you and your partner both own the property, you may also consider splitting the gain for tax efficiency, depending on each person’s income.
❌ Common Pitfalls to Avoid
Even the best intentions can go sideways. Watch out for these:
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- Assuming you qualify for exemptions when you don’t. Always double-check.
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- Poor record-keeping—especially for cost base additions.
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- Forgetting partial exemptions apply if the property was a home then an investment.
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- Selling too soon and missing out on the 12-month discount.
And the big one: not getting professional advice. Seriously—talk to a tax accountant before you sell anything with a dollar sign attached.
