Australian Property CGT: Cost Base Elements & Main Residence 6-Year Rule (2026–2027)

Real estate is Australia's largest wealth asset. When disposing of investment property or converting a home into a rental, understanding Capital Gains Tax (CGT) under Part 3-1 of the *Income Tax Assessment Act 1997* is essential for legally minimizing tax liabilities.

This guide outlines the 5 elements of the property cost base, the 6-year main residence absence rule, and how to maximize your 50% CGT discount.

1. The 5 Elements of the ATO Property CGT Cost Base

Your net capital gain is calculated as:

$\text{Net Capital Gain} = \text{Sale Proceeds} - \text{Total Cost Base}$

The ATO allows property investors to include expenses across 5 statutory cost base elements:

1. 1
   Acquisition Purchase Price: The contract purchase price paid for the property.
2. 2
   Incidental Acquisition Costs: Stamp duty, conveyancing legal fees, buyer agent fees, building inspection reports, and valuation fees.
3. 3
   Holding Costs: Loan interest, council rates, land tax, and maintenance costs incurred on non-income producing property.
4. 4
   Capital Improvements: Structural renovations, kitchen/bathroom remodels, extensions, and landscaping that add permanent capital value.
5. 5
   Disposal Expenses: Real estate agent commissions, marketing/advertising costs, and legal conveyancing fees incurred when selling.

2. Main Residence Exemption & 6-Year Absence Rule

Under Section 118-110, your primary home (main residence) is 100% exempt from CGT.

The 6-Year Rule (Section 118-145):

If you move out of your primary residence (for work or travel) and rent it out:

• •
  You can continue to treat the property as your CGT-exempt main residence for up to 6 years of rental period.
• •
  If you move back in and then out again, a new 6-year period begins!
• •
  Condition: You cannot treat any other property as your main residence during the same period.

3. Step-by-Step Property CGT Worked Example

Scenario:

• •
  Purchase Price (2019): $600,000
• •
  Stamp Duty & Legal Fees: $28,000
• •
  Capital Renovation (2022): $42,000
• •
  Sale Price (2026): $950,000
• •
  Agent Commission & Selling Fees: $20,000

Calculation:

1. 1
   Total Cost Base: $600,000 + $28,000 + $42,000 + $20,000 = $690,000
2. 2
   Gross Capital Gain: $950,000 - $690,000 = $260,000
3. 3
   Apply 50% CGT Discount (Held > 12 Months): $260,000 × 50% = $130,000 Net Capital Gain
4. 4
   Tax Impact: $130,000 added to taxable income in the year of contract exchange.

4. Estimate Your Property Capital Gains Tax

Calculate your property cost base, 50% CGT discount, and final ATO tax payable using Calcivo's Capital Gains Tax Calculator.