Capital Gains Tax & Negative Gearing in Australia: Property Investor Guide 2026–27
Understanding how capital gains tax, rental deductions and negative gearing work together can make a significant difference when buying, holding or selling an Australian investment property.
Property investment is not only about purchase price, rent and future growth. Tax can influence the result throughout the entire ownership period — from the deductions you claim each year to the capital gain calculated when the property is eventually sold.
Two concepts sit at the centre of that calculation: capital gains tax and negative gearing.
They operate differently, but understanding how they interact can help property investors maintain better records, avoid incorrect deductions and make more informed decisions about the timing of a future sale.
Key Takeaways
- Capital gains tax is part of Australia's income tax system rather than a separate standalone tax.
- Under the rules applying in September 2026, eligible Australian resident individuals who hold an asset for at least 12 months may generally qualify for the 50% CGT discount.
- The cost base can include more than the purchase price, including certain acquisition, ownership, improvement and disposal costs.
- A qualifying main residence may receive a full or partial CGT exemption.
- Under current negative-gearing rules, an eligible net rental loss may generally reduce other assessable income.
- Major changes to CGT and negative gearing have been legislated to commence from 1 July 2027, making forward planning particularly important.
What Is Capital Gains Tax?
Capital gains tax, commonly called CGT, generally becomes relevant when you dispose of a CGT asset and make a capital gain.
For a typical investment property, a gain may arise when the capital proceeds from the disposal exceed the property's relevant cost base.
The resulting net capital gain forms part of your taxable income and is dealt with through the income tax system.
The calculation depends on factors including your cost base, capital losses, available concessions, ownership structure and the way the property was used while you owned it.
When does the CGT event happen?
For a normal property sale under contract, the CGT event generally occurs when the contract is entered into — not when settlement takes place.
This can become particularly important around the end of a financial year.
For example, if a property contract is signed in June but settlement occurs in August, the gain will generally belong to the income year containing the June contract date.
Do not assume that delaying settlement into a new financial year automatically shifts the capital gain. The contract date will generally determine the timing of the CGT event.
Understanding the Property Cost Base
The cost base is one of the most important parts of a property CGT calculation.
Investors sometimes retain the purchase contract but lose records for other costs incurred over many years of ownership. That can make the final CGT calculation unnecessarily difficult.
Depending on the circumstances and the tax treatment of the expense, relevant cost-base items may include:
- the original purchase price
- stamp duty on acquisition
- conveyancing and eligible legal costs
- certain costs associated with acquiring or disposing of the property
- qualifying capital improvements
- real estate agent commission on sale
- advertising and eligible legal costs associated with disposal
- certain ownership costs where the tax rules allow them to form part of the cost base
An amount that has already been deducted against assessable income may not simply be added again to the CGT cost base. The tax treatment of each expense needs to be considered carefully.
The Current 50% CGT Discount
As at 2 September 2026, eligible Australian resident individuals may generally reduce a qualifying capital gain by 50% where the relevant asset has been held for at least 12 months.
The 12-month period and other eligibility requirements matter. Simply owning a property at some point in two different financial years does not automatically mean the discount is available.
A simple example
Investment property sale
This is deliberately simplified. Real CGT calculations may also involve capital losses, ownership percentages, previous use of the property, depreciation adjustments, main-residence periods and other factors.
What about companies and super funds?
Companies generally do not receive the individual 50% CGT discount.
Different CGT treatment applies to complying superannuation funds, so the ownership structure can materially affect the eventual tax outcome.
Capital Losses Can Affect the Result
Capital losses are generally relevant to capital gains rather than ordinary salary or wage income.
Where you have eligible capital losses available, they are generally applied against capital gains before applying the CGT discount.
Unused net capital losses may generally be carried forward for use against eligible future capital gains, subject to the relevant rules.
Main Residence CGT Exemption
A dwelling that genuinely qualifies as your main residence may receive a full CGT exemption where the relevant conditions are satisfied.
A full exemption will generally require factors such as:
- the dwelling being your main residence throughout the relevant ownership period
- the property not being used to produce assessable income during that period
- the relevant land generally being two hectares or less
- satisfaction of the residency requirements
Where these conditions are not satisfied for the whole ownership period, a partial exemption may instead apply.
What is the six-year rule?
If a property was your main residence and you later move out and use it to produce income, you may in certain circumstances choose to continue treating it as your main residence for CGT purposes for up to six years while it is rented.
The interaction becomes more complicated if you also acquire and treat another dwelling as your main residence during the same period.
Your ownership history, use of the property, other residences and timing all need to be considered before assuming the entire gain will be exempt.
Turning your former home into a rental property
Special CGT rules can apply when a dwelling that was previously your main residence is first used to produce assessable income.
Because market value may become relevant in particular circumstances, obtaining an appropriate valuation at the right time can be important.
Waiting until many years later to reconstruct the property's value can make the calculation far more difficult.
What Is Negative Gearing?
A rental property is commonly described as negatively geared where the deductible costs associated with earning rental income exceed the rental income generated by the property.
Under the rules currently applying in 2026–27, an eligible net rental loss may generally be claimed against other income such as salary, wages or business income.
Where there is not enough other income to absorb the loss, the treatment can depend on the circumstances and applicable tax rules.
Common Rental Property Deductions
A rental property investor may be able to claim deductions for eligible expenses incurred in earning rental income.
| Expense | General treatment |
|---|---|
| Loan interest | Interest attributable to borrowing used for the income-producing property may generally be deductible. Principal repayments are not the same thing as interest. |
| Council & water rates | Eligible rates associated with an income-producing rental property may generally be deductible. |
| Property management | Eligible property manager fees and certain letting expenses may generally be deductible. |
| Insurance | Eligible landlord and building insurance costs can generally form part of rental deductions. |
| Repairs | Genuine repairs arising from use of the property to earn income may sometimes be immediately deductible. |
| Capital works | Structural improvements and certain construction expenditure are generally treated differently from ordinary repairs and may be claimed over time. |
| Strata / body corporate | Ordinary eligible levies can have a different tax treatment from special levies used for capital expenditure. |
| Advertising | Eligible costs of advertising the property for tenants may generally be deductible. |
Repairs vs Capital Improvements
This is one of the areas where rental property claims are commonly misunderstood.
Repairs and maintenance
Work that restores an item or part of the property to its previous condition because of deterioration from income-producing use may potentially qualify as a repair.
Initial repairs
Repairs required because damage or defects already existed when the property was purchased are generally not immediately deductible merely because the work was completed after tenants moved in.
Improvements
Work that improves the property beyond its previous state — such as structural additions, significant upgrades or new features — can be capital in nature.
The classification can affect whether an amount is immediately deductible, claimed over time or relevant to the property's CGT cost base.
Depreciation and Capital Works
Property investors may also encounter deductions relating to capital works and eligible depreciating assets.
Capital works can include eligible structural construction expenditure and qualifying improvements. The applicable rate and period depend on the property, expenditure and date of construction.
Separate rules apply to depreciating assets such as particular fixtures, equipment and appliances.
Residential property investors should also be aware that restrictions can apply to deductions for previously used depreciating assets.
Some deductions claimed during ownership can interact with the property's cost base when the property is eventually sold. Good records make the future CGT calculation substantially easier.
Current Rules vs Changes from 1 July 2027
One reason property tax planning is particularly important this financial year is that significant reforms have been legislated for commencement from 1 July 2027.
Current CGT framework
Eligible individuals can still potentially access the existing 50% CGT discount for qualifying assets held for at least 12 months, subject to the relevant rules.
New CGT framework
Legislated reforms introduce a different treatment involving inflation-based cost-base indexation and minimum-tax rules for affected future gains.
Negative gearing
Eligible net rental losses can generally still reduce other assessable income under the current rules.
Residential property changes
New restrictions affect the treatment of losses from certain established residential investment properties, with exemptions and grandfathering rules applying in specified circumstances.
Transitional rules, acquisition dates, the type of property and the period in which gains accrue can affect the outcome. Investors with substantial unrealised gains should consider the transition well before the commencement date.
Planning Before You Sell an Investment Property
Property tax planning should ideally happen before a sale contract is signed.
Some areas worth reviewing include:
- your original purchase contract
- stamp duty and acquisition costs
- legal and conveyancing records
- renovation and capital improvement invoices
- depreciation schedules
- periods of private use and rental use
- main residence history
- available capital losses
- your ownership structure
- the proposed contract date
Waiting until after settlement to reconstruct decades of records can create unnecessary work and sometimes mean legitimate cost-base information can no longer be found.
Does the Timing of a Sale Matter?
Timing can affect a property CGT outcome, but it should be considered alongside the investment decision rather than being the only reason for selling or retaining an asset.
Holding period
Under the current rules, whether the asset satisfies the required CGT discount holding period may make a substantial difference.
Capital losses
Existing or realised capital losses can affect the net capital gain calculation.
Other taxable income
Because a net capital gain forms part of taxable income, your other income for the same financial year can influence the overall income tax outcome.
Financial year
A contract signed shortly before or after 30 June may fall into a different income year. However, investment, financing and market considerations should also form part of any decision about when to sell.
Common Property Tax Mistakes
Investors often retain the contract but lose records for stamp duty, legal costs and later improvements.
Capital improvements, initial repairs and ordinary repairs can receive very different tax treatment.
For an ordinary property sale, the contract date generally determines when the CGT event occurs.
Expenses still need to satisfy the relevant tax rules and private expenditure must be appropriately excluded.
Holiday use, family use or periods where the property was not genuinely available for rent can affect deductions.
Some tax consequences may already be fixed once the relevant CGT event has occurred.
Records Property Investors Should Keep
Property ownership can extend over decades, which makes reliable record keeping particularly important.
Useful records can include:
- purchase and sale contracts
- settlement statements
- stamp duty records
- legal and conveyancing invoices
- renovation and construction invoices
- depreciation schedules
- loan statements
- council, water and land tax records
- property management statements
- insurance records
- valuations
- evidence showing when the property was rented, vacant or used privately
How CGT and Negative Gearing Work Together
Negative gearing relates primarily to the annual income and expenses associated with holding an investment property.
Capital gains tax generally becomes relevant when a CGT event such as disposal occurs.
That means one property can produce deductible rental losses during its ownership period and later produce a capital gain when sold.
The fact that rental deductions were available during ownership does not mean the future capital gain is automatically exempt.
Likewise, not every amount spent on a rental property is an immediate deduction. Some expenditure may instead be capital in nature and relevant to depreciation, capital works or the eventual CGT calculation.
The Bottom Line
Property tax works best when it is considered throughout the investment lifecycle rather than only when the annual tax return or sale contract arrives.
Keep reliable records from the day you purchase the property, distinguish ordinary rental expenses from capital expenditure, understand any main-residence periods and review the CGT position before entering into a sale contract.
This is particularly important during 2026–27 because significant CGT and negative-gearing reforms are scheduled to commence from 1 July 2027.
Thinking about buying or selling an investment property?
We can help you review the tax implications, deductions, cost base and capital gains position before you make your next property decision.
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