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.

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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.

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2. Main Residence Exemption & 6-Year Absence Rule

Under Section 118-110 of the ITAA 1997, a dwelling that qualifies as your main residence is generally exempt from CGT, provided all statutory conditions are satisfied. Partial exemptions may apply if the dwelling was used to produce assessable income or was not your main residence throughout your ownership period.

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 choose to continue treating the dwelling as your CGT-exempt main residence for up to 6 years while it produces rental income.
• •
  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.

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3. Step-by-Step Property CGT Worked Example

Scenario:

• •
  Purchase Price (2019): $600,000
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  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.

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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.