Capital Gains Tax and the 50% Discount

When you sell an investment property in Australia, any profit above your cost base is a capital gain. Your cost base includes the purchase price, stamp duty, legal costs, and capital improvement costs (not repairs — only improvements that increase the property's value). Selling costs (agent commission, legal fees) reduce your capital proceeds. The 50% CGT discount applies if you hold the property for more than 12 months. This means you only include half the gain in your assessable income. On a $300,000 gain, you'd only pay tax on $150,000. At a 47% marginal rate, that's $70,500 in tax — without the discount, it would have been $141,000. The discount is one of the most powerful wealth-building tools in Australian tax law. For trusts (discretionary trusts), the 50% discount also applies, and the trustee can distribute the discounted gain to beneficiaries in lower tax brackets — amplifying the benefit further. This is why property held in a family trust can be highly tax-efficient at the point of sale.

The timing of a property sale can significantly affect your tax outcome. If you're approaching a financial year where your income will be lower — a sabbatical, recovering from surgery, a year of low business income — selling in that year means your capital gain is taxed at a lower marginal rate. Similarly, if you have carry-forward capital losses from shares or other investments, these offset capital gains dollar for dollar before the 50% discount is applied. If you have $50,000 in capital losses and a $300,000 capital gain, your net gain is $250,000, then halved to $125,000. Main Residence Exemption (MRE): Your primary home is generally CGT-free. Strategically, if you move into an investment property and live there for a period, it may qualify for a partial exemption. The 'six-year rule' also allows you to rent out your main residence for up to six years while treating it as your main residence for CGT purposes — a powerful strategy for Brisbane homeowners who want to rent while living elsewhere temporarily.