If you're thinking about selling a rental property, the tax is often the biggest unknown. 

You'll usually pay capital gains tax on the profit. It's part of your income tax: the gain is added to your income for the financial year you sign the contract, and you pay the tax after you lodge your return for that year. How much you pay depends mostly on the size of the gain and your other income that year.

Here's what you need to know:

• Your capital gain is roughly the sale price less what the property cost you, including buying and selling costs such as stamp duty, legal fees and your agent's commission.
• If you've owned it for at least 12 months and you're an Australian resident, only half the gain is taxed under the current rules.
• If you sign the contract before 1 July 2027, the 2026 Budget changes don't affect your sale, even if settlement is later.
• For contracts signed from 1 July 2027, the rules change for the part of the gain made after that date. That part isn't halved. Instead, the property's value at 1 July 2027 is adjusted for inflation, and a minimum 30 per cent tax can apply, mainly in a year when your other income is low. The first stage of these changes is law, and some details are still being settled.
• Australian resident sellers generally need a clearance certificate from the ATO before settlement, or the buyer must generally hold back 15 per cent of the price.

This guide is for people who own a rental in their own name. Different rules apply to companies, trusts and super funds. The worked example below shows how it adds up, and the last section lists what to ask your tax agent before you sign.

How is capital gains tax worked out when I sell?

Your capital gain is the sale price less what the property cost you. If you've owned it for at least 12 months and you're an Australian resident, it's currently halved, then added to your taxable income for the year you sign the contract and taxed at your marginal rate. Capital gains tax (CGT) isn't a separate tax, and these are the main things that decide how much you pay.

When the sale happens. For capital gains tax, you sell on the date you sign the contract, not at settlement (the day ownership passes to the buyer). The gain goes in your tax return for the financial year the contract is signed, even if settlement falls in the next one.

The size of the gain. Your capital gain is the sale price less the property's cost base, which is what the property has cost you in total. It includes:

• the purchase price
• the costs of buying and selling, such as stamp duty, legal fees, your agent's commission and advertising
• money spent improving the property, such as an extension or a new kitchen

You can't include anything you've claimed, or could have claimed, as a tax deduction, such as interest, council rates and repairs on a rental. And if you've claimed, or could have claimed, deductions for the cost of the building itself (called capital works deductions), you generally take those off the cost base, which makes the gain bigger.

If you own the property with someone else, each owner makes their own capital gain in line with their share of the property, and reports it in their own return.

If you've made a capital loss on another investment, such as shares, it reduces your capital gain. Capital losses can only be used against capital gains, never against your wages or other income, and any you can't use carry forward to later years.

Your tax rate. Your net capital gain is added to the rest of your taxable income, so it's taxed at your marginal rate. For 2026–27, the resident rates are:

The Medicare levy of 2 per cent is generally added on top. A large gain can push part of your income into a higher band in the year you sell.

Will only half the gain be taxed?

Under the current rules, you can halve your capital gain before it's taxed (the 50 per cent CGT discount) if both of these apply:

• you owned the property for at least 12 months
• you're an Australian resident for tax purposes

For a rental, what counts is how long you've owned the property. The 12 months runs from the date you signed the contract to buy until the date you signed the contract to sell, not counting either of those days. Any capital losses come off before the discount is applied.

There are a few exceptions:

• A former home first rented out less than 12 months before you sell: if part of the gain is taxable because it was rented, that part generally can't get the discount.
• If you've been a foreign or temporary resident while owning the property, you may get a reduced discount or none.
• If you bought before 21 September 1999 and sign the contract before 1 July 2027, you can choose an older method instead, which adjusts your costs for inflation up to September 1999 rather than halving the gain. That choice ends for contracts signed from 1 July 2027.

How much tax will I pay when I sell? An example

On a $200,000 gain with $80,000 of other income, the tax comes to about $35,150 under the 2026–27 rates, or about 18 per cent of the gain. Here's how that's worked out.

This is a made-up example to show how the steps fit together under the 2026–27 rules. It isn't tax advice.

Priya is an Australian resident and always has been. In 2018 she bought a unit for $500,000 and has rented it out ever since. She has never lived in it and owns it on her own. She signs a contract to sell it for $725,000 in 2026–27. She has no capital losses and no other capital gains that year, the costs in the table are all her costs, and apart from the sale, her taxable income is $80,000.

The $100,000 is added to her $80,000, so her taxable income for 2026–27 is $180,000. At the rates above, the gain adds $33,150 to her income tax, plus $2,000 in Medicare levy. That's $35,150 in total, or about 18 per cent of her $200,000 gain.

The example leaves out things that could change the result, such as tax offsets, the Medicare levy surcharge, and any appliances or fittings sold with the unit, which are dealt with separately.

How much tax on a $100,000 or $300,000 gain?

Using the same 2026–27 rates, here's the extra tax on a capital gain for someone who has owned a rental for at least 12 months, is an Australian resident and signs the contract in 2026–27. The figures include the 2 per cent Medicare levy and leave out tax offsets.

Your own figure depends on your cost base, your income and any losses or offsets, so it's worth having your tax agent work it out before you sign.

What changes from 1 July 2027?

For contracts signed from 1 July 2027, the part of a gain made after that date isn't halved. Instead, the property's value at 1 July 2027 (or its cost, if you buy later) is adjusted for inflation, and a minimum 30 per cent tax can apply. Contracts signed before then aren't affected.

The changes come from the 2026 Federal Budget, delivered on 12 May 2026. The first stage of the changes became law in June 2026, and the government is still finalising some details, which the ATO's capital gains tax reform page updates as they're settled.

Nothing changes for contracts signed before 1 July 2027. The whole gain is taxed under the current rules, even if settlement happens after that date.

For a contract signed on or after 1 July 2027, a property you owned before that date is treated in two parts:

So if you sign soon after 1 July 2027, only the growth since that date falls under the new rules. Whether indexation works out better or worse than halving depends on how fast the property's value grows compared with inflation. Indexation is only available if you've owned the property for at least 12 months and haven't been a foreign or temporary resident since 1 July 2027 (or since you bought it, if later).

The split uses the property's market value just before 1 July 2027. The law also lets you choose an alternative method instead of a valuation, once the government has set out how that method works. The ATO says it will publish guidance when it has. If you expect to own the property on that date, it's worth asking your tax agent whether to get a valuation.

The minimum 30 per cent tax is a top-up on the part of the gain made from 1 July 2027. If the income tax on that part, worked out before any tax offsets and not counting the Medicare levy, comes to less than 30 per cent, you pay the difference. Gains on eligible new homes are left out of this calculation, and deductible gifts can reduce the part of the gain it applies to. In practice, it can only add tax if some of that gain would otherwise be taxed below 30 per cent. That mainly happens in a year when your other income is low, such as after you retire. You won't pay it if you receive certain government payments at any time in that financial year, such as the Age Pension, JobSeeker, Family Tax Benefit or Parental Leave Pay.

New homes are treated differently. Owners of eligible new homes can choose to keep the 50 per cent discount for the whole gain. The exact definition of a new home hasn't been settled yet. Under the proposals so far, an established home bought second-hand wouldn't qualify.

Property bought before 20 September 1985 has been exempt from CGT. That stays true for gains made before 1 July 2027, but gains made from that date will be taxed. Even now, a major improvement made after 20 September 1985, such as an extension, can be taxed as a separate asset if its cost is above a threshold the ATO sets each year and above 5 per cent of the sale price.

If you're selling one rental to buy another

The Budget also changed negative gearing (using a rental's losses to reduce the tax on your other income) for established homes:

• A rental you held, or had signed a contract for, before 7:30pm AEST on 12 May 2026 can keep being negatively geared until you sell it. That treatment doesn't carry over to the next property.
• For most established homes bought after that time, from 1 July 2027 any rental loss can no longer reduce your other income, such as your wages. It's carried forward and can be used against rental income or capital gains from residential property.
• New builds are excluded from the change, although the law's exact definition of a new build hasn't been settled yet. There are some other exceptions, such as for certain transfers after a death or a relationship breakdown.

What if the property was once my home?

If the property was your home (your main residence) for some of the time you owned it, you may not pay CGT on some or all of the gain. A few points that often surprise people:

• There's no minimum time you have to live in a home for it to count as your main residence, but the exemption generally only covers the time it was your home. What matters is whether it genuinely was your home: whether you and your family lived there, moved your belongings in, and used it as your address.
• If you moved out and rented it, you can choose to keep treating it as your main residence for up to six years while it's rented (sometimes called the six-year rule), or indefinitely if it isn't rented out or available for rent. You don't need a particular reason for moving out, and if you move back in, a new six-year period can start later. But it must have been your home first, and you generally can't treat another property as your main residence for the same time.
• If you first rented out your home after 20 August 1996, its market value at that point usually becomes its cost for working out the taxable part of the gain. That's why the ATO says to get a valuation when you first rent it out.
• Foreign residents at the time of sale generally can't use the main residence exemption at all.

If the property has only ever been rented out and you bought it on or after 20 September 1985, no exemption generally applies. Our guide on how to avoid capital gains tax on an investment property covers the exemptions and the legitimate ways to pay less in more detail, and you can estimate how much of your gain is exempt with the ATO's property exemption tool.

What else do I need to sort out before settlement?

Before settlement you'll need an ATO clearance certificate, and it's worth checking where GST and land tax fit in.

Do I need a clearance certificate?

Since 1 January 2025, Australian residents selling property in Australia generally need a clearance certificate from the ATO, given to the buyer at or before settlement. It tells the buyer they don't need to withhold any of the price. Without one, the buyer must generally hold back 15 per cent of the sale price and pay it to the ATO. It's credited against your tax when you lodge your return, and any excess is refunded.

Applying is free, and each owner on the title applies separately. It can take up to 28 days, so the ATO suggests applying as soon as you're considering selling. A certificate is valid for 12 months, as long as your residency for tax purposes doesn't change. You can apply through the ATO's clearance certificate page.

GST

There's no GST on the sale of an established home that's been used as a rental. GST generally only comes into it for new residential property sold by someone registered for GST, such as a builder or developer. As the seller, you still need to tell the buyer in writing whether they have to withhold GST, and standard contracts usually include this.

Land tax

Land tax isn't a tax on selling. It's an annual state or territory tax on land you own, such as an investment property, and each state and territory sets its own rules. In NSW, for example, the seller must give the buyer a land tax clearance certificate at least 14 days before settlement. How any land tax is split between you and the buyer depends on your contract, so it's worth asking your conveyancer.

How does depreciation affect the sale?

Depreciation on the building (capital works deductions) comes off your cost base, which increases your capital gain. Fittings such as carpets and ovens are dealt with separately, and their sale value can add to or reduce your income.

The building itself (capital works). These deductions are a flat 2.5 per cent a year of the construction cost for most homes whose construction started after 15 September 1987. For most owners, including anyone who bought after 13 May 1997, the deductions you've claimed, or could have claimed, reduce your cost base, so they increase your capital gain when you sell.

Fittings and appliances (plant and equipment). Items such as carpets, blinds and ovens are dealt with separately from the property. When you sell, each item needs its own value. Depending on the depreciation you've claimed, or weren't allowed to claim, the result can be an amount added to your income, a deduction, a capital gain or loss, or a mix. And if you bought an established rental after 9 May 2017, you generally can't claim depreciation on fittings that were already there when you bought it.

A registered tax agent can work out these figures from your depreciation schedule, and the ATO's Rental properties guide covers both in detail.

When do I pay the tax?

The tax is part of your assessment for the year you signed the contract, so you pay it after you lodge that year's return, by the date on your notice of assessment. Money is generally only held back at settlement if you don't have a clearance certificate. The ATO suggests working out roughly what you'll owe and setting money aside to cover it. If you have investment income, you may also be asked to pay tax in instalments during the following year.

Keep your records for at least five years after the sale, and longer if you're carrying forward a capital loss. That includes the contracts, settlement statements, receipts for buying, selling and improvement costs, and your depreciation schedule.

Questions to work through with your tax agent

Having your answers ready before you sign makes the conversation quicker:

• When will the contract be signed? It decides which financial year the gain falls in, and whether the rules from 1 July 2027 apply.
• What was the total cost base? Gather the purchase contract, stamp duty, legal fees, improvement costs and selling costs.
• What depreciation have you claimed? Capital works deductions reduce your cost base, and fittings are dealt with separately.
• Was it ever your home? If it was, part of the gain may be exempt.
• Do you have capital losses from this year or earlier years?
• Will you still own it on 1 July 2027? If so, ask whether to get a valuation.
• Have you applied for your clearance certificate?

If you're also weighing up putting some of the money into super, our guide on selling an investment property to put into super explains the limits.

Where to check the details

The rules above come from these official sources:

• CGT when selling your rental property (ATO)
• Cost base of an asset (ATO)
• CGT discount (ATO)
• Tax rates for Australian residents (ATO)
• Capital gains tax reform (ATO)
• Treating a former home as your main residence (ATO)
• Land tax clearance when selling (Revenue NSW)