By Niko Iliakis ·
Fact Checked
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On this page:
- First of all, what is capital gains tax?
- How can I avoid or minimise capital gains tax?
- Note the data of purchase
- Use the principle place of residence exemption
- Use the temporary absence rule
- Utilise your super fund
- Increase your cost base
- Hold the property for at least 12 months
- Sell during a low income year
- Invest in affordable housing
If you’re planning to sell a property, knowing you’ll have to pay capital gains taxon any profits can take a lot of the wind out of your sails. But did you know there are ways to minimise the amount you pay, or even avoid it altogether?
Of course, when it comes to tax issues, it’s always a good idea to seek advice from a registered tax agent or accountant. But for a brief overview of the various concessions and exemptions available to property owners, read on.
First of all, what is capital gains tax?
Capital gains tax is the tax paid when an asset such as a house is sold for a profit. It was introduced in Australia on 20 September 1985 and applies to assets that were acquired since then (though there are exceptions).
When you sell an asset for more than you paid for it, the difference is considered a capital gain. Unless you’re eligible for an exemption, this amount must be declared in your tax return for that year.
If, however, an asset sells for less than you paid for it, the difference will count as a capital loss. While you won’t be able to claim a capital loss against your regular income, you can use it to offset tax paid on any capital gains, even future ones.
How can I avoid or minimise capital gains tax?
There are a few exemptions to CGT that may be available to you. But even if you don’t qualify, don’t fret. There are still ways to reduce the size of your tax bill:
- Note the date of purchase
- Use the principal place of residence exemption
- Use the temporary absence rule
- Utilise your super fund
- Increase your cost base
- Hold the property for at least 12 months
- Sell during a low income year
- Invest in affordable housing
Note the data of purchase
As mentioned above, if your property was acquired before 20 September 1985, it will be exempt from capital gains tax. This means you won’t have to pay tax on any profits, and you won’t be able to use any losses to reduce your assessable income.
Use the principle place of residence exemption
You can generally expect to receive a full exemption from CGT if you and your family have lived in a property since purchasing it, it hasn’t been used to generate any income, and it sits on land of two hectares or less.
More broadly, the ATO will consider a property your main residence if it meets the following criteria, though different weight will be given to each depending on individual circ*mstances:
- You and your family live in it
- You keep your personal belongings in it
- It's the address your mail is delivered to
- It's your address on the electoral roll
- Services such as gas and power are connected.
But even if you move out, change your address on the electoral roll and relocate your personal belongings, a property can retain main residence status indefinitely so long as it’s not used to produce income. When you sell, you’ll be eligible for the main residence exemption from CGT.
Use the temporary absence rule
If you use a property you no longer live in to generate income, such as by renting it out, the ATO will allow you to continue treating it as your main residence for up to six years. In this case, however, you’ll only receive a partial main residence exemption.
During this period, you won’t be able to treat any other dwelling as your main residence, except for a limited time if you’re moving to a new home.
Utilise your super fund
If you purchased an investment property through a self-managed super fund and have held it for at least 12 months, you can take advantage of some pretty generous tax benefits.
For example, your capital gains tax will be discounted by a third if the sale takes place during the accumulation phase. And if you sell the property during the pension phase, you won’t have to pay capital gains tax at all.
Increase your cost base
One way to reduce the amount you pay is by increasing your property’s cost base. This is the cost of acquiring, holding and disposing of a property, and is subtracted from the selling price to give you your capital gain.
According to the ATO, the cost base of a CGT asset is made up of:
- The money you paid for the asset.
- The incidental costs of acquiring the asset, such as stamp duty and valuation fees.
- The cost of owning the asset.
- Capital costs to increase the asset’s value.
- Capital costs of preserving or defending your title or rights to the asset.
Increasing the cost base can be done by including things like stamp duty, loan application fees, conveyancer’s fees and the cost of any renovations. Make sure to keep records of all your property-related expenses to assist with this.
Hold the property for at least 12 months
Any properties bought and sold within 12 months will be taxed at the full CGT rate. But if you hold onto a property for longer than 12 months, you can reduce your capital gain using either the CGT discount method or the indexation method.
The CGT discount method applies a 50% discount to your capital gain. So if a property sells for $200,000 above its cost base, only half of that amount ($100,000) will be added to your taxable income.
The indexation methodis a bit more complicated and can only be used if you acquired a property before 21 September 1999. It allows you to convert the original cost of a property into today’s money by applying a CPI-based indexation factor.
Sell during a low income year
If you know your income will be lower next financial year, delaying the sale of a property until then will lower your marginal tax rate and reduce your CGT liability. This requires a bit of planning and foresight, but if done right it can save you a pretty penny.
Invest in affordable housing
On 1 January 2018, the government introduced an additional 10% CGT discount for those who invest in qualifying affordable housing, bringing the maximum CGT discount up to 60%.
For your property to be eligible, it must be rented out to low or moderate income tenants at a rate below the private market rental rate. It must also be managed through a registered community housing provider and held for at least three years in total.
Home loan comparisons on Mozo- last updated 1 February 2023
Search promoted home loans below or do a full Mozo database search . Advertiser disclosure
Featured Product
Unloan Variable
Owner Occupier, Refinance Only, LVR <80%
interest rate
comparison rate
Initial monthly repayment
4.44% p.a. variable
4.35% p.a.
For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.
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Unloan Variable
For refinancers only. Built by CommBank, the Unloan is the first home loan with an increasing discount (conditions apply) for borrowers. No application or banking fees. No monthly account keeping or early exit fees. Apply in as little as 10 minutes.
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- 4.44% p.a. variable
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- 4.35% p.a.
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- 4.44% p.a. variable
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- 4.35% p.a.
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Variable Home Loan 70
interest rate
comparison rate
Initial monthly repayment
4.85% p.a. variable
4.87% p.a.
Affordable home loan rate for buyers or refinancers.. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 30% deposit required.
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Variable Home Loan 70
Affordable home loan rate for buyers or refinancers.. No monthly or ongoing fees. Option to add an offset for 0.10%. Access to savings with unlimited redraws available. Minimum 30% deposit required.
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- 4.85% p.a. variable
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- 4.87% p.a.
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- 4.85% p.a. variable
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- 4.87% p.a.
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Hot Deal$3,288 cashback when you refinance an existing home loan of $250,000 (T&Cs apply).
Discounted Home Value Loan
Owner Occupier, Principal & Interest, LVR <60%
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Initial monthly repayment
4.59% p.a. variable
4.60% p.a.
Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Receive $3,288 cashback when you refinance an existing home loan of $250,000. Must submit for full approval by 28 February 2023 and settle by 30 April 2024.
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Discounted Home Value Loan
Enjoy competitive rates for owner occupiers. Enjoy unlimited free extra repayments. Flexibility to redraw additional payments for free. No ongoing monthly service fee. Receive $3,288 cashback when you refinance an existing home loan of $250,000. Must submit for full approval by 28 February 2023 and settle by 30 April 2024.
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- 4.59% p.a. variable
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- 4.60% p.a.
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- 4.59% p.a. variable
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- 4.60% p.a.
- Upfront fees
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- $300.00
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- Maximum loan to value ratio
- 60.00%
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- $50,000
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- $15,000,000
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- Variable
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- Receive $3,288 cashback when you refinance an existing home loan of $250,000. Must submit for full approval by 28 February 2023 and settle by 30 April 2023.
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Straight Up
Obliterate, Investor, Principal & Interest, <50% LVR
interest rate
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Initial monthly repayment
5.09% p.a. variable
5.09% p.a.
Zero fees to pay. The more you pay down, the more we lower your rate. Enjoy unlimited fee-free redraw transactions. With Athena’s Automatic Rate Match, customers score the same new customer rates on our like-for-like loans. The Athena App puts all your home loan features at your fingertips. Investor only. 50% LVR required.
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Straight Up
Zero fees to pay. The more you pay down, the more we lower your rate. Enjoy unlimited fee-free redraw transactions. With Athena’s Automatic Rate Match, customers score the same new customer rates on our like-for-like loans. The Athena App puts all your home loan features at your fingertips. Investor only. 50% LVR required.
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- 5.09% p.a.
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- 5.09% p.a.
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Smart Booster Home Loan
2 Year Discounted Variable Rate, Owner Occupier, Principal & Interest, <80% LVR
interest rate
comparison rate
Initial monthly repayment
4.85% p.a.variable for 24 months and then 5.25% p.a. variable
5.21% p.a.
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Smart Booster Home Loan
New super low introductory rate home loan for two years. Min 20% deposit. No monthly or ongoing fees. Fast settlement times. Mozo award-winning online lender. Friendly, local Australian based team.
- interest rate
- 4.85% p.a.variable for 24 months and then 5.25% p.a. variable
- comparison rate
- 5.21% p.a.
- interest rate
- 4.85% p.a.variable for 24 months and then 5.25% p.a. variable
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- 5.21% p.a.
- Upfront fees
- $520
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- $0.00
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- Maximum loan to value ratio
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- $50,000
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- $2,000,000
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Niko Iliakis
Money writer
Niko Iliakis is a finance journalist at Mozo specialising in home loans, property and interest rate movements. With an eye for facts and figures, Niko deep-dives into topics to help readers understand key info and make more informed financial decisions. He is ASIC RG146 (Tier 2) certified for general advice.
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*WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.
**Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circ*mstances and interest rate changes.
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